Oil Settles Higher Thursday

NEW YORK (DTN) -- Spot-month oil futures on the New York Mercantile Exchange advanced Thursday afternoon, although settled off earlier session highs after rallying across the board, with the West Texas Intermediate crude contract posting a fresh seven-week high sparked by bullish weekly supply reports.

"Oil is still up now, but we pared gains due technical [trading] and the fact that the report showed an increase in domestic crude production," said senior analyst Phil Flynn at Price Futures in Chicago. "There's...big resistance at $55."

The oil futures complex was initially supported overnight through the start of regular trade by data from the American Petroleum Institute showing petroleum stocks fell across the board last week.

The rally gathered steam immediately after the U.S. Energy Information Administration issued its Weekly Petroleum Status Report for the week-ended Feb. 17 that was bullish versus expectations, but less bullish on crude than data shown by the API, an industry group. However, by midday the oil futures complex was paring the gains.

The EIA report was bullish for products, showing a 4.9 million bbl stock drawdown for distillates that surpassed forecast for a decline of 1.5 million bbl. Implied demand for the fuel soared 439,000 bpd on the week to 4.292 million bpd, nearly 16% higher than the same week a year ago.

Gasoline stocks declined 2.6 million bbl, the data showed, exceeding an expected draw of 1.5 million bbl, while implied gasoline demand rose by 230,000 bpd to 8.663 million bpd, although was still 9.5% below the same week in 2016.

On the bearish side, the federal report showed a 563,000 bbl increase in commercial crude supply that was below early week expectations for a 4.0 million bbl, yet was bearish when contrasted with an 884,000 bbl drawdown reported late Wednesday by the API.

The report showed U.S. crude production climbed 24,000 bpd to a 9.001 million bpd 10-month high last week.

Crude demand also declined, with refinery crude inputs down 187,000 bpd for the week reviewed while the refinery run rate dropped 1.1% to 84.3% of capacity. Analysts said the decline in run rates was due to seasonal maintenance.

"Total petroleum inventories fell over 11 million bbl as crude imports dropped under 7.3 million bpd and [despite] oil production rising to over 9 million bpd for the first time since April 1, 2016," said analyst Kyle Cooper at IAF Advisors in Houston. "[This] is a bullish report with oil production the biggest bearish factor."

NYMEX April WTI futures settled up 86cts at $54.45 bbl, off a $54.94 seven-week spot high, while the April Brent crude futures contract on the IntercontinentalExchange rallied 74cts to $56.58 bbl. NYMEX March ULSD futures gained 2.71cts to $1.6567 gallon, off a $1.6819 three-week high. NYMEX March RBOB futures settled 1.53cts higher at $1.5286 gallon, off a $1.5586 one-week high.

Flynn said comments by an Iranian official to the effect that Tehran was nervous about WTI prices heading toward $55 bbl oil, which could cause demand destruction, also undermined the advance for oil futures.

"It suggests Iran is setting the groundwork so that down the line they won't have to cut their own production. That's the first crack in the armor of OPEC with regards to compliance," said Flynn.

Leaders of the Organization of the Petroleum Exporting Countries said this week that their members have fulfilled 90% of the required 1.2 million bpd in production cuts and they expect full compliance before the June 30 expiration of the Nov. 30 agreement, but their non-OPEC counterparts have limited compliance to half of the 558,000 bpd agreed to output reduction.

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