Oil Higher Ahead of EIA Report

NEW YORK (DTN) -- New York Mercantile Exchange oil futures gained at the start of regular trade Thursday morning in front of oil supply data from the Energy Information Administration due at 11:00 AM ET that's expected to show U.S. crude stockpiles declined while product stocks increased during the final week of 2016.

Late Wednesday, the American Petroleum Institute released a mixed oil report for the week-ended Dec. 30 that missed estimates, sources said. The report detailed a 7.4 million bbl crude stock draw, a 4.3 million bbl gasoline stock build and an increase in distillate fuel inventories of 5.2 million bbl.

According to a Schneider Electric survey, the market expected a 2.8 million bbl decline in U.S. crude oil stockpiles, a 1.5 million bbl build in gasoline and a 1.2 million bbl increase in middle distillate stocks.

The oil futures complex was also boosted during premarket trade by a weaker U.S. dollar and wire reports indicating Saudi Arabia plans to make deeper cuts to its oil production than it had agreed to under the terms of the Nov. 30 agreement by the Organization of Petroleum Exporting Countries.

Saudi Arabia was slated to cut 486,000 bpd, which represents about 4.6% of its October 2016 output, but the Kingdom is reportedly discussing with its customers to reduce supply by up to 7%, which would translate to about 740,000 bpd of its production. The Saudis had already told those customers in Europe and in the United States to expect less oil supply during the first half of this year.

"This shows OPEC and especially the Saudis are serious about getting rid of excess oil supply in the market," said analyst Phil Flynn at Price Futures in Chicago.

OPEC and non-OPEC oil producers agreed to cut a combined 1.758 million bpd from Jan. 1 through June 30 in an effort to rid the oil market of excess supply and rebalance the market.

In currency trade, the dollar continued a sharp decline overnight after minutes of the Federal Open Market Committee's December meeting released Wednesday suggested certain risks could change the trajectory of expected increases in the federal funds rate.

Currency investors had been buying the greenback recently on the heels of tightening monetary policy, boosting the dollar to a 14-year high on Tuesday (1/3) amid speculations the central bank would quicken the pace of rate hikes this year. However, the FOMC minutes indicated that rate hikes could quicken, but they gave no guarantee and traders interpreted those minutes as dovish. At the December meeting, the Fed boosted its benchmark rates by 25 basis points to a 0.50% to 0.75% range.

At last glance, NYMEX February WTI crude futures moved 46cts higher to $53.72 bbl and ICE March Brent gained 50cts to $56.96 bbl. The NYMEX February ULSD futures contract edged up 0.52cts to $1.6982 gallon, and February RBOB futures were unchanged at $1.6459 gallon.

George Orwel can be reached at george.orwel@dtn.com