Oil Futures Settle Higher Thursday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled higher on Thursday afternoon as bullish sentiment remained supportive, although the spot-month contracts for West Texas Intermediate crude, RBOB and ULSD held within this week's ranges following long liquidation in March.

"The petroleum markets are testing the upside, with market sentiment apparently passing the test posed by Wednesday's mix of weaker-than-expected U.S. inventory numbers," said Tim Evans at Citi Futures. "In general, the market's ability to shrug off bearish news but respond to bullish developments is viewed by short-term traders as the definition of a bull market."

He cautioned that "this process of rejecting bearish news is also the process by which markets become overvalued. On balance, we think the market's rebound off the March lows, while impressive, may also be expanding the downside risk."

Today's gains follow Wednesday's mixed price action spurred by the U.S. Energy Information Administration's oil report showing an unexpected build in U.S. crude supply and weaker demand for gasoline.

The EIA showed total U.S. petroleum stocks excluding the Strategic Petroleum Reserve up 1.0 million barrels (bbl) during the last week of March to 1.3374 billion bbl while up 11.7 million bbl versus a year ago and 217.4 million bbl higher compared with the five-year average.

Specifically, commercial crude stocks climbed 1.6 million bbl in the week-ended March 31 to a 535.5 million bbl new record high, and 36.9 million bbl higher than a year ago. Crude production rose 52,000 barrels per day (bpd) to 9.199 million bpd, the highest since January 2016 and 190,000 bbl higher on the year. A 1.5% increase in refinery run rate to 90.8% was also reported, with refinery crude input 203,000 bpd higher at 16.429 million bpd, the highest input rate since the week-ended Jan. 13.

Oil futures were buoyed by sentiment that demand for both crude and gasoline would increase during the summer peak driving season, and inventories are likely to be drawn down. However, the data showed implied gasoline demand down 279,000 bpd to 9.24 million bpd for the week, but was 21,000 bpd higher than the same week a year ago.

The bullish sentiment supporting the market also comes from ongoing production cuts of nearly 1.8 million bpd by the Organization of the Petroleum Exporting Countries and their 11 non-OPEC allies.

OPEC Secretary-General Mohammad Barkindo indicated early this week that he was cautiously optimistic the oil market is already rebalancing and global oil inventories are starting to come down after three months of output cuts by OPEC and their 11-non-OPEC partners. Those cuts agreed to last year started on Jan. 1 and run through June 30, although rising U.S. crude production has some OPEC members calling for an extension of the cuts through December.

The May NYMEX WTI futures contract settled 55 cents higher at $51.70 bbl and IntercontinentalExchange June Brent futures settled up 53 cents at $54.89 bbl after inside trade for both contracts, with the Brent/WTI spread little changed at a $3.19 bbl Brent premium, near a $3.21 high posted on Wednesday.

In products trade, NYMEX May ULSD futures edged up 0.94 cent to a $1.6129 gallon settlement, with NYMEX May RBOB futures shaking off initial weakness and posting a 1.43 cents gain to a $1.7296 settlement.

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