Oil Futures Shake Off Softness

Oil Futures Shake Off Softness

NEW YORK (DTN) -- Nearby delivered New York Mercantile Exchange crude and ULSD futures settled slightly higher with the RBOB contract flat after trading sideways most of the session ahead of weekly oil reports that are expected to show stock draws.

The oil futures complex was higher overnight, fell in morning trade and then shook off the weakness during market-at-close trade after the Wall Street Journal reported that Saudi Arabia told officials with the Organization of the Petroleum Exporting Countries it wants to extend the current agreement to cut crude oil production by 1.2 million barrels per day (bpd) beyond June when the six-month quota scheme is scheduled to expire.

Details of the Saudi comments were not available, but it comes as the Energy Information Administration reported in its Short-term Energy Outlook this afternoon that Saudi Arabian crude oil production declined from 10.55 million bpd averaged during the fourth quarter of 2016 to 10.01 million bpd for the first quarter.

EIA noted that the OPEC cuts alongside 558,000 bpd of output cuts by their 11 non-OPEC partners have supported the oil futures market since January, and the market is now expected to come into supply-demand balance this year.

The OPEC output cuts have so far started to bring down global oil supplies, but not as fast as some OPEC members would like due, in part, to rising U.S. production.

In its STEO, EIA also projects U.S. oil production this year at 9.2 million bpd, up 300,000 bpd from 2016, and revised its forecast for 2018 up by 170,000 bpd to 9.9 million bpd for year-on-year growth of 700,000 bpd. World oil consumption was estimated at 96.668 for 2016 and 98.157 million bpd for this year and 99.785 million bpd for 2018, the monthly EIA report showed.

Concerns over geopolitical risks have also bolstered the oil futures market since the U.S. strike against Syria on Thursday, April 6, although the market looks set to focus on fundamentals for the balance of this abbreviated trade week. The market is closed on Good Friday.

On weekly supply, a survey of analysts this morning showed expectations of stock draws across the broad for the first week of April, with crude oil inventories projected to have declined by nearly 1.0 million barrels (bbl), gasoline stocks seen down nearly 2.0 million bbl and distillates nearly 1.5 million bbl lower.

The American Petroleum Institute will issue its weekly report at 4:30 PM ET while EIA is set to release its corresponding weekly oil report Wednesday morning.

The May NYMEX WTI futures contract settled 32 cents higher at $53.40 bbl, near a $53.43 near five-week high on the spot continuation chart. IntercontinentalExchange June Brent contract settled up 25 cents at $56.23 bbl, off a $56.26 near five-week spot high, while holding at a $2.88 bbl trans-Atlantic arbitrage premium.

In products trade, May ULSD futures gained 0.33 cent to $1.6506 gallon, near a $1.6533 five-week high on the spot continuation chart. The NYMEX May RBOB futures contract settled flat at $1.7577 gallon, with the front-month RBOB contract at parity to the June contract.

Analysts see upside potential for gasoline values heading into the summer peak driving season which runs through Labor Day, with a strong economy also seen boosting fuel demand.

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