Oil Futures Advance

Oil Futures Advance

Oil Futures Advance as IEA sees Demand Overtaking Supply

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled higher Friday afternoon after the International Energy Agency said this morning demand would overtake new supply and trigger inventory drawdowns if the Organization of the Petroleum Exporting Countries maintained the high level of compliance with their pledged production cuts.

In its monthly Oil Market Report, IEA estimates OPEC reached 90% compliance with its Nov. 30, 2016 agreement to cut 1.2 million bpd of its production in January with a 1.0 million bpd reduction that, if continued through the deal's six-month term, would lead to a drawdown in global oil inventories of 600,000 bpd.

"This report is the latest evidence this is a new OPEC that is serious about cutting production and I think they may extend the output cuts for another six months as some of its members have suggested," said analyst Phil Flynn at Price Futures. "On top of that, U.S. product demand is strong, and with a wider Brent/WTI spread we could see a lot of product exports going to Europe over the coming weeks."

On Wednesday, the Energy Information Administration detailed a 7.6% spike in gasoline demand to an 8.941 million bpd six-week high during the week-ended Feb. 3 while distillate demand rose 101,000 bpd to 3.91 million bpd, and is 324,000 bpd or 9.4% higher so far this year compared with 2016.

Nearest delivered Brent crude traded on the IntercontinentalExchange settled at a $2.84 bbl premium to nearest delivered NYMEX West Texas Intermediate futures, and has held over $2.00 bbl so far in 2017. The Brent premium expanded following the Nov. 30 OPEC agreement, reaching a $3.49 bbl nearly one-year high in mid-January and only briefly slipping below $2.00 since the OPEC deal.

NYMEX March West Texas Intermediate futures settled 86cts higher at $53.86 bbl, ending near a $54.13 four-day high while little changed for the week. The ICE April Brent crude oil futures contract gained $1.07 to $56.70 bbl at settlement, having traded at a $56.88 four-day high and ended the week down 11cts.

NYMEX March RBOB futures settled 1.94cts higher at $1.5896 gallon, off a $1.6134 three-week spot high while posting a weekly gain of 3.59cts. NYMEX March ULSD futures increased 2.44cts to a $1.6659 gallon settlement, paring an advance to a $1.6758 four-day high while flat on the week.

In its report, IEA said global oil supplies fell nearly 1.5 million bpd to 96.4 million bpd in January, with lower output from both OPEC and non-OPEC countries. Oil inventories held by the Organization for Economic Cooperation and Development were drawn down five consecutive months in ending 2016, and in the fourth quarter declined by nearly 800,000 bpd, with inventory ending the year below 3.0 billion bbl for the first in slightly more than a year, IEA said.

IEA also revised up its estimate for world oil demand for 2016 for the third straight month due to robust demand in the fourth quarter, while estimating global oil consumption at 96.6 million bpd last year for a year-on-year growth rate of 1.6 million bpd. Year-on-year growth in 2017 is projected at 1.4 million bpd.

Contrasting IEA's bullish report, oil services firm Baker Hughes, Inc. this afternoon reported an eight-rig increase in the number of active oil rigs in the United States to a total of 591 for the week-ended today. A total of 66 oil rigs have been added so far this year, while EIA on Wednesday showed U.S. domestic production grew by 63,000 bpd during the week-ended Feb. 3 to a 10-month high of 8.978 million bpd.

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