Oil Spikes After Bearish EIA Data

Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange spiked in response to a bearish set of data released by the Energy Information Administration, with computer-automated algorithmic trading seen igniting the rally in front of key support points.

"We were just about to go negative, and then we popped," said Stephen Schork with The Schork Report, crediting the burst to the upside to automated trading.

"We know Wall Street is holding record length, and are extremely exposed to the upside" he said, saying "as we approach $50, we can expect a lot of rhetoric out of OPEC, a lot of rhetoric out of Russia that they're complying."

The Organization of the Petroleum Exporting Countries and 11 non-OPEC oil producing countries including Russia have agreed to cut 1.758 million bpd in oil production during the first half of 2017 to accelerate a market rebalance and boost oil prices.

However, OPEC countries Nigeria and Libya are exempt from the Nov. 30 OPEC pact and are looking to increase their production that could negate some of the cuts. Additionally, U.S. shale oil producers are set to pounce on higher oil prices with new production with data and industry sources indicating this is already occurring. The combined effect is seen delaying the market rebalance potentially into 2018.

NYMEX February West Texas Intermediate crude futures dropped to a $50.75 bbl intraday low in the immediate reaction to the EIA data, which showed a larger-than-expected 4.1 million bbl increase in U.S. commercial crude supply and a 176,000 bpd jump in domestic crude production to an 8.946 million bpd nearly nine-month high.

In late midmorning trade, NYMEX February WTI futures were $1.25 higher just above $52.00 bbl. March Brent crude futures on the IntercontinentalExchange traded at a $53.70 bbl low before rallying $1.30 to just under $55.00 bbl.

EIA reported a much larger-than-expected 5.0 million bbl increase in gasoline supply for the first week of 2017 and near flat implied demand, up 4,000 bpd from an 11-month low to 8.47 million bpd.

NYMEX February RBOB futures pared an early advance to a $1.5494 intraday low in reaction to the data before surging nearly 5.5cts to top $1.60 gallon.

NYMEX February ULSD futures trimmed an advance to a $1.6157, holding above a $1.6064 gallon five-week spot low traded overnight and rallied nearly 4.0cts t $1.6500 gallon.

EIA reported an 8.4 million bbl jump in distillate fuel inventory for last week with supply at 170.0 million bbl, with the build "pretty impressive considering the cold last week," said Schork.

Distillate fuel supplied to market, which includes diesel and heating oil, surged 406,000 bpd from a nearly 23-year low to 3.198 million bpd during the week reviewed. Heating oil is primarily consumed in the U.S. Northeast.

Brian L. Milne can be reached at brian.milne@dtn.com

(BAS)