Oil Futures Settle Little Changed

By George Orwel
DTN Refined Fuels Editor

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled shallowly mixed Wednesday afternoon in range-bound trade as bearish weekly oil supply and demand data released midmorning by the Energy Information Administration countered bullish psychology spurred by a strong U.S. economy and ongoing production cuts by the Organization of the Petroleum Exporting Countries.

"Those holding long positions are not getting spooked by any bearish data ... OPEC cuts have changed sentiment," said analyst Kyle Cooper at IAF Advisors in Houston.

The oil futures complex briefly moved higher in midmorning trade after early losses, as traders looked beyond EIA's bearish supply report and focused instead on the falling crude imports.

"The market didn't change much despite the big crude stock build we saw because crude imports fell…I expect gasoline demand to come back and to see more gasoline exports from the United States in the weeks ahead as global inventories continue to fall," said senior analyst Phil Flynn at Price Futures in Chicago.

EIA data showed U.S. crude imports averaged 8.5 million bpd during the week-ended Feb. 10, a drop of 881,000 bpd from the previous week.

"The market is thinking oil imports will continue to come down as less OPEC supply starts to show up in the United States," added Flynn.

EIA reported domestic crude oil supply spiked 9.5 million bbl during the week-ended Feb. 10, more than twice the expected increase of 4.0 million bbl, and near the American Petroleum Institute's reported 9.9 million bbl crude stock build.

The price impact to NYMEX West Texas Intermediate futures from the large weekly crude build was also ameliorated by a 700,000 bbl drawdown in crude stocks at the Cushing terminal in Oklahoma, the delivery location for the contract that was more than an expected draw of 200,000 bbl.

Oil futures continue to find support from recent monthly reports showing OPEC is mostly complying with its self-imposed production cuts. OPEC's Monthly Oil Market Review released Monday showed crude production by the group fell 890,000 bpd from December to January to 32.14 million bpd.

At settlement, NYMEX March WTI futures were down 9 cents at $53.11 per bbl and the IntercontinentalExchange April Brent crude futures contract eased 22 cents to $55.75 per bbl. NYMEX March RBOB futures eked out a 0.12-cent gain to settle at $1.5479 per gallon and the NYMEX March ULSD contract edged down 0.77 cents to $1.6305 per gallon.

According to EIA, gasoline supply rose 2.8 million bbl and distillate fuel inventories declined by about 689,000 bbl for the week reviewed, with implied demand for gasoline sliding 508,000 bpd and declined 57,000 bpd for middle distillates.

Gasoline exports tumbled 347,000 bpd last week that contributed to the drop in implied demand. The decline is likely due to fewer exports to Mexico after the government there ended price subsidies in some parts of the country at the start of the year. U.S. gasoline exports to Mexico increased in 2016 on rising demand and limited refining capacity to meet that demand.

Earlier, Labor Department said the consumer price index advanced 0.6% in January, the biggest increase in four years, while the Commerce Department said retail sales rose by a more-than-expected 0.4% in January. Also, the Empire State Index, a gauge for manufacturing activity in the New York area, jumped to a two-year high of 18.7 points in January from 6.5 points in December.

The data points to a strong U.S. economy that would boost oil demand, but also are likely to bolster the U.S. Federal Reserve's case for tightening monetary policy that could strengthen the dollar, which has an inverse relationship with domestic crude prices. The dollar reversed down in index trading after reaching a one-month high after the CPI and retail sales data was released this morning.

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

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