Oil Futures Higher on Crude Stock Draw

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled higher Wednesday afternoon, with the West Texas Intermediate crude futures contract posting the biggest one-day gain so far this year as the Energy Information Administration showed a steep stock draw for domestic crude oil inventories.

EIA's Weekly Petroleum Status Report for the week-ended May 5 showed that total U.S. petroleum inventories fell 4.1 million barrels (bbl) while total petroleum demand rise to more than 20.0 million barrels per day (bpd).

"This was an overall bullish report with the details possibly not quite as bullish as the headlines," said analyst Kyle Cooper at IAF Advisors. "[WTI] prices are currently above the important $47 level and if prices can maintain this level, a shot at $50 is possible [soon]."

At settlement, NYMEX June WTI futures advanced $1.45 or 3.2% higher to $47.33 bbl, off a $47.78 four-day high. July Brent crude futures on the IntercontinentalExchange settled $1.49 higher at $50.22 bbl, crossing the $50 psychological mark, and trading to a $50.63 four-day high. The Brent contract ended at a $2.89 bbl premium to WTI, up 4cts on the day.

NYMEX June ULSD futures rallied 3.33cts to $1.4754 gallon, moving off a $1.4861 five-day high. June RBOB futures spiked 5.01cts to $1.5396 gallon at settlement, paring gains after posting a four-day high of $1.5523.

The market was off to a strong start this morning, boosted at the outset by the American Petroleum Institute's data released late Tuesday afternoon showing crude stocks fell 5.8 million bbl, distillate supplies fell 1.2 million bbl and gasoline stocks rose 3.2 million bbl.

The EIA report was more bullish overall than the API data, while support for the two reports were aided by bullish comments from members of the Organization of the Petroleum Exporting Countries who back an extension of ongoing production cuts beyond their scheduled June 30 expiration.

Today, the Algerians added their voice to other OPEC members in support of extending the 1.2 million bpd in the cartel's production cuts until December. Russia has also said non-OPEC might support extending their 558,000 bpd in output cuts.

Still, the main focus today was on domestic supply and demand. EIA's report for the week-ended May 5 detailed U.S. crude oil stocks plunged 5.2 million bbl to 522.5 million bbl, reducing the year-on-year surplus to 2.8%.

The report also showed gasoline supplies were drawn down by 150,000 bbl last week while up 500,000 bbl against a year ago. Middle distillate fuel inventories were down 1.6 million bbl on the week while down 4.2% versus a year ago.

Demand data was mixed however, with the report showing a 418,000 bpd drop for refinery crude inputs as refinery utilization rate fell 1.8% to 91.5% for the week reviewed. Implied demand jumped 252,000 bpd for gasoline while down 117,000 bpd for distillate fuels during the week reviewed.

"People are starting to see demand coming back and so the market will get back into balance at some point soon," said analyst Phil Flynn at Price Futures.

The most glaring bearish part of the EIA data was on crude production which rose last week by 21,000 bpd to 9.314 million bpd, with output now 512,000 bpd higher than a year ago. Rising U.S. output has frustrated OPEC's efforts to reduce global oil surplus.

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