Oil Rallies in Thursday Trade

NEW YORK (DTN) -- Spot-month oil futures on the New York Mercantile Exchange rallied at the start of regular trade Thursday morning ahead of weekly data from the Energy Information Administration that's now expected to show domestic oil stock draws and an improvement in product demand after a report issued late Wednesday by the American Petroleum Institute surprised the market with bullish statistics.

"The bears are starting to throw-in the towel because they've realized this API report shows we may have peaked in terms of oil supply, and we may see [oil] stock draws going forward," said analyst Phil Flynn at Price Futures.

EIA will release its Weekly Petroleum Status Report at 11:00 AM ET, with the report delayed a day because federal offices were closed Monday for Presidents Day.

The oil futures complex rallied overnight after the API report showed crude oil and oil product stock draws for the week-ended Feb. 17. API data detailed an 884,000 bbl drawdown in commercial crude oil and 893,000-bbl decline in gasoline stockpiles while API reported a 4.23 million bbl plunge in distillate fuel inventories.

A Schneider Electric survey had estimated a stock build of 4.0 million bbl for crude while gasoline and distillate stocks were each expected to fall by 1.5 million bbl.

The API data also showed crude stocks at Cushing terminal in Oklahoma, the delivery point for NYMEX West Texas Intermediate futures, declined by 1.73 million bbl while the survey anticipated a draw of 500,000 bbl.

The API data suggests demand is picking up, and coincided with other economic data showing a strengthening U.S. economy, which would further boost oil demand going forward.

Flynn said recent concerns about a drop in U.S. gasoline demand may have been overstated, and that President Donald Trump's planned tax cuts may help boost demand this year, and so "the fundamental picture is looking much brighter."

At 9:00 AM ET, NYMEX April WTI futures rose $1.25 to $54.84 bbl while April Brent crude futures on the IntercontinentalExchange rallied $1.31 to $57.15 bbl. NYMEX March ULSD futures climbed 4.02cts to $1.6698 gallon and NYMEX March RBOB futures were 3.87cts higher at $1.5515 gallon.

Despite the gains today, the oil futures complex remains within recent trading ranges amid a tug-of-war between rising U.S. oil production and ongoing production cuts by the Organization of the Petroleum Exporting Countries and 11 non-OPEC producers.

OPEC leaders have said this week that their members have fulfilled 90% of the required 1.2 million bpd in production cuts and expect full compliance before the June 30 expiration of the Nov. 30 agreement. Non-OPEC counterparts have so far achieved only half of the 558,000 bpd promised reduction in output agreed to on Dec. 10.

"With OPEC cutting production, we may also see a drop in crude imports and the market may rebalance quicker than we think," said Flynn.

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