Oil Higher in Wednesday Morning Trade

NEW YORK (DTN) -- New York Mercantile Exchange oil futures extended higher Wednesday morning with spot-month West Texas Intermediate crude and the ICE Brent crude contracts recouping their March losses on the back of renewed bullish sentiment, technical support and falling oil supplies in the United States and globally.

The Organization of the Petroleum Exporting Countries cut their crude oil production by 153,000 bpd in March and revised up their expectation for non-OPEC oil supply in 2017 by 176,000 bpd, OPEC said in their Monthly Oil Market Report for April released this morning.

Citing secondary sources, MOMR showed OPEC crude production at 31.928 million bpd in March, 17.6% below their 32.5 million bpd production quota agreed to in November and 1.157 million bpd below December output. In the outlook, OPEC said it expects year-on-year growth in non-OPEC supply of 580,000 bpd in 2017 to 57.89 million bpd following a 690,000 bpd contraction to 57.32 million bpd in 2016.

The OPEC report also showed Saudi Arabian production fell by 111,000 bpd to 9.9 million bpd in March, with Nigerian output down 156,000 bpd to 1.269 million bpd. Saudi Arabia also has told OPEC it supports an extension of the production cuts beyond June when the six-month quota scheme is set to expire, according to the Wall Street Journal.

Saudis are the most influential OPEC member and their support carries more weight given that Iraq and other members also want an extension. OPEC meets May 25 to debate the issue. The current deal was the brain child of the Saudis.

Domestically, the market is looking ahead to the U.S. Energy Information Administration's weekly oil report due out at 10:30 AM ET which the market expects to show stock draws across the board. It comes after the American Petroleum Institute on Tuesday showed more-than-expected stock draws of 1.3 million bbl for crude oil, 3.7 million bbl for gasoline and 1.6 million bbl for distillates during the first week of April.

With crack spreads currently strong, refiners have the incentive to boost plant run rates so as to produce more summer-grade gasoline for the peak driving summer season that will run through Labor Day, said Jason Schenker, a strategist at Prestige Economics.

Oil futures have recovered since last week from the selloff seen in March as geopolitical tension has increased, with the United States exchanging aggressive rhetoric with Russia over Syria after the U.S. struck Syria last week.

Technical charts are another bullish indicator, showing May NYMEX WTI and ICE June Brent crude contracts moving higher after breaking through resistance levels at $53.30 and $56.33, respectively, with those price levels now points of technical support.

In early trade, the May NYMEX WTI futures contract was 14cts higher at $53.54 bbl, off a $53.76 five-week spot high, and the IntercontinentalExchange June Brent contract was up 12cts at $56.35 bbl, off a $56.65 five-week spot high. While the Brent/WTI spread hasn't changed much, the front-month May WTI and June Brent crude contracts have increased their discounts to June and July contracts, respectively, which suggests buying interest building for summer crude deliveries.

In products trade, May ULSD futures gained 1.10cts to $1.6616 gallon, off a $1.6661 six-week high on the spot continuation chart and testing resistance at $1.6685. The NYMEX May RBOB futures contract rose 0.46cts to $1.7625 gallon and has posted a $1.7710 near 21-month high of on the spot continuation chart. The front-month RBOB contract continues to hold parity with the June contract.

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