Oil Futures Mostly Higher on Stock Draw

NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures settled mostly higher Wednesday afternoon with the West Texas Intermediate and ULSD contracts alongside IntercontinentalExchange Brent futures rallying off Tuesday's 3-1/2 month lows following the release of three bullish supply reports from the American Petroleum Institute, the International Energy Agency and the Energy Information Administration.

NYMEX April RBOB was the laggard, reversing from a three-day high to settle flat because "at this time of year, the last of the winter grade is usually being dumped out of primary storage," said David Thompson, executive vice president at Powerhouse, a Washington, D.C., brokerage firm, which pressures spot physical prices.

The gains for oil futures were also bolstered by a selloff in the U.S. dollar, with the greenback dropping to a one-month low despite a 25-basis-point increase in the federal funds rate announced this afternoon by the Federal Reserve. Yellen signaled the likelihood for two more rate hikes this year, however the market expected a total of four increases in the overnight borrowing rate in 2017, triggering a selloff in the index.

"[T]he rate hike was already baked-in and there were excessive positions that are now being liquidated the same way we saw liquidation in the oil market last week," said analyst Brian LaRose at ICAP in Jersey City, N.J.

The selloff in the dollar coincided with market on close trade for oil futures, triggering a late wave of buying, with NYMEX April WTI futures settling near a $49.04-per-barrel (bbl) three-day high at $48.86 bbl, up $1.14. ICE May Brent crude futures rose 89 cents to $51.81 bbl at settlement, edging off a three-day high of $52.08. NYMEX April ULSD future added 2.05 cents to settle at $1.5124 gallon, trimming an advance to a $1.5213 three-day high. The NYMEX April RBOB futures contract was little changed at $1.5834 gallon, reversing off a three-day high of $1.6108.

Weekly supply reports from the API late Tuesday and Wednesday morning by the EIA showing across the board stock draws bolstered the market midweek after the same report by the EIA week prior had triggered a steep selloff on long liquidation.

Midmorning, EIA detailed a 236,000 bbl draw in commercial crude stocks for the week-ended March 10 that compared with the API's reported 531,000 bbl stock decline and contrasted with market expectations for a 3.8 million bbl build.

EIA also showed a gasoline stock draw of 3.1 million bbl and a distillates stock decline of 4.2 million bbl, surpassing expectations for draws of 1.8 million bbl and 1.9 million bbl, respectively. API reported draws of 3.9 million bbl for gasoline and 4.1 million bbl for distillates.

In addition, the International Energy Agency reported strong compliance with oil production cuts by the Organization of the Petroleum Exporting Countries in January and February in their monthly Oil Market Report released early Wednesday.

IEA said OPEC achieved a 98% compliance rate with their 1.2 million barrels per (bpd) in planned production cuts during the first two months of a six-month term, and added that they continue to see a global supply-demand deficit during the first half of 2017, estimating the shortfall at 500,000 bpd, provided OPEC maintains strong compliance with their agreement. The Paris-based agency said it would take time for the lower production to induce global inventory draw downs.

Their analysis mitigated other details in the report showing OPEC production rose 170,000 bpd in February to 32.23 million bpd, with Saudi Arabian crude production up 180,000 bpd to 10.16 million bpd. IEA lauded the kingdom, noting their output remained below their target, with compliance by the Saudis at 135%.

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