Oil Futures Higher on Bullish Sentiment

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures were higher in morning trade Monday, extending last week's rally, with the West Texas Intermediate crude contract gaining for the fifth straight day amid bullish investor sentiment, growing tension between Russia and the United States over Syria and another oil production outage in Libya.

"We are looking forward to oil reports this week to see if inventories are starting to fall, but for now there's already enough risk out there to keep the market supported," said analyst Phil Flynn at Price Futures Group in Chicago. "Geopolitical concerns in Korea, Syria and Egypt are all raising the stakes for oil and this will continue to be an issue for the market going forward as global inventories tighten."

The fact that nearby delivered NYMEX WTI and IntercontinentalExchange Brent futures have returned to trading ranges seen in January and February in the aftermath of the implementation of the nearly 1.8 million barres per day (bpd) in production cuts by the Organization of the Petroleum Exporting Countries and their 11 non-OPEC allies shows trader concerns about potential oil supply disruption risks and the prospect of supply-demand rebalancing heading into the summer peak driving season in the Western hemisphere.

It comes as Russian oil minister Alexander Novak said Russia would consider suggestions by some OPEC members to extend the output cuts for another six months during meetings set for May. The current quota scheme ends in June.

The Commodity Futures Trading Commission's Trade Commitment report for the week-ended April 4 showed investors buying NYMEX WTI crude, ULSD, and RBOB futures, suggesting they are looking ahead to the summer peak driving season when demand is expected to increase and help draw down current high inventories.

The CFTC data shows noncommercial sector boosted long paper positions to 490,691 on fresh purchases of 16,998 contracts, and money managers were buyers of 17,747 crude futures primarily on short covering.

In Libya, Sharara oilfield shut on Sunday, the latest in a series of supply disruptions at the country's biggest oilfield. It came back online just a week ago following a one-week outage. In the latest incident, a pipeline that connects the field to the Zawiya export terminal located west of the capital Tripoli, stopped operation. Sharara was producing 200,000 bpd last week, Libya's state-owned oil company said.

The outage has disrupted the OPEC member's output, which returned to 700,000 bpd last week. Libya was hoping to keep increasing output to 1.0 million bpd by August, which would still be below the 1.6 million bpd Libya produced before political turmoil and civil war started in 2011.

Tough rhetoric continued between the U.S. and Russia following last week's U.S. missile strike against a Syrian airbase in retaliation for the latter's use of chemical weapons on civilians. U.S. Secretary of State Rex Tillerson said the U.S. will hold anyone accountable for violating the Geneva Convention, while the Kremlin accused the U.S. of being unwilling to cooperate with them on the Syrian issue.

Also, the U.S. sent a naval ship to the Korean Peninsula in the wake of recent missile tests by North Korea.

Domestically, while oil services firm Baker Hughes, Inc. reported on Friday, April 7, that 10 more rigs added to the U.S. oil patch last week to 672, the 12th consecutive weekly increase in the number of active oil rigs, analysts are now forecasting U.S. petroleum stock draws of more than 2.0 million barrels (bbl) for crude, gasoline and distillates to have been recorded during the week-ended April 7.

The market awaits monthly oil supply and demand reports from the U.S. Energy Information Administration on Tuesday, April 11, OPEC on Wednesday, April 12, and the International Energy Agency on Thursday, April 13.

In early trade, May NYMEX WTI futures gained 52 cents to $52.76 bbl, near a $52.99 fresh one-month high on the spot continuation chart after punching through resistance at $52.52.

IntercontinentalExchange June Brent futures climbed 53 cents to $55.77 bbl after inside trade, with the Brent contract holding below resistance at $56.33 while trading at a premium over WTI that was little changed at $3.01 bbl.

The V-shaped recovery for both Brent and WTI to January-February trading ranges is fueled by the impression of technical support, which is expected to generate more buying interest, said analyst Tim Evans at Citi Futures.

NYMEX May ULSD futures were up 1.21 cents at $1.6405 gallon, off a $1.6468 five-week high on the spot continuation chart, and NYMEX May RBOB futures nudged up 0.30 cent to $1.7492 gallon, holding below last week's 19-month spot high of $1.7660, with RBOB futures in backwardation.

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