Oil Futures Settle Up

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled higher Thursday for the second straight day during a follow-through rally spurred after the Energy Information Administration reported a big decline in U.S. crude oil supply Wednesday that eased concerns about an oil supply surplus and on bullish reports from the Organization of the Petroleum Exporting Countries.

The early sign of a tightening market was threatened somewhat this morning when OPEC issued a monthly report that revised up non-OPEC production for 2017 by 360,000 bpd for annual growth of 950,000 bpd. That data caused oil futures to pare gains from overnight trade, said an analyst.

However, traders found comfort in the fact that OPEC also revised up its global oil demand estimates, and comments by Iraqi and Algerian oil ministers who said Thursday that they would support a plan to extend oil production cuts of 1.8 million bpd by the producer group and their 11 non-OPEC allies beyond the June 30 expiration, said an analyst.

OPEC is set to meet on May 25 to formally sign off on the plan, with non-OPEC Russia also expected to provide support for the extension that is now seen as key to rebalancing the market.

"This rally was nothing but a follow-through rally from yesterday and the OPEC report saying non-OPEC production rose nearly derailed the rally, but we still ended up -- closed higher, and that's important," said analyst Phil Flynn at Price Futures Group. "The OPEC report definitely slowed the upside momentum."

NYMEX June West Texas Intermediate crude futures settled 50cts higher at $47.83 bbl, off a better than one-week high of $48.22. July Brent crude oil futures on the IntercontinentalExchange were 55cts higher at a $50.77 bbl settlement, edging off a $51.16 better than one week high.

In products trade, NYMEX June ULSD futures gained 1.45cts to a $1.4899 gallon settlement, off a $1.4981 better than one-week high. June RBOB futures rallied 2.26cts to $1.5622 gallon at settlement, off a near two-week high of $1.5709.

This week the market has so far been driven by a raft of supply and demand data, and now awaits the weekly oil rig-count report due out Friday afternoon from Houston-based oil services firm Baker Hughes, Inc. that is expected to show a 17th straight increase in the number of drilling rigs deployed to the nation's oil patch.

Analysts said EIA's Weekly Petroleum Status Report was key to Thursday's rally. Issued Wednesday, the report showed a 5.2 million bbl decline in crude stocks to 522.5 million bbl during the week ended May 5, leaving stocks at a 2.8% year-over-year supply surplus. Despite higher crude production, the U.S. stock crude surplus is now down to 14.0 million bbl versus a year ago and 112.8 million bbl above their five-year average, the report added.

In its Monthly Oil Market Report for May, OPEC revised higher global oil demand in 2016 by 65,000 bpd, saying total world oil demand grew at a 1.44 million bpd rate to average 95.12 million bpd. For 2017, demand is estimated to grow at a 1.27 million bpd to 96.38 million bpd, unchanged from last month's report.

Developing countries that aren't part of the Organization for Economic Cooperation and Development will continue to lead demand growth at 1.04 million bpd, while OECD continues to grow albeit at a reduced pace of 230,000 bpd, the report said. This is a key point in the wake of recent data showing China's economy is back to strong growth after slackening in recent years, said analysts.

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