Oil Futures Settle at 4-Week Highs

NEW YORK (DTN) -- The full slate of New York Mercantile Exchange spot-month oil futures settled at their highest levels in a month on Monday afternoon, with the expiring June West Texas Intermediate crude futures contract completing its fourth-straight rally.

Futures gains were underpinned by technical support, a weaker U.S. dollar and comments from Saudi Arabian oil minister who said the Organization of Petroleum Exporting Countries on Thursday (5/25) will ratify a proposal hatched by the Saudi kingdom and Russia to prolong their production cuts through the first quarter of 2018.

Russia and 10 other non-OPEC producers are expected to extend their cuts of 558,000 bpd in coordination with OPEC, and the Saudi oil minister Al Falih said the oil market was starting to benefit not only from seasonal gasoline demand that usually peaks during the second and third quarters, but also from the improving economic outlook in Japan, Europe and the United States.

"We are fairly optimistic… nobody is against extending cuts because they realize we've not achieved our goal of bring inventories down to their five year average," he said, adding that OPEC compliance rate remains high.

OPEC has invited other producers not participating in the current quota scheme to the May 25 ministerial summit in Vienna, hoping to deepen the production cuts and quicken the pace of rebalancing supply and demand.

In currency trade, the U.S. dollar index fell to a near seven-month low, assisting the oil futures advance. Oil and the dollar have returned to an inverse trading relationship since last week.

NYMEX June WTI crude futures contract expired 40cts higher at $50.73 bbl, moving off a $51.06 one-month high, and trading at a 40cts discount to the July WTI contract that rose 46cts to a $51.13 bbl settlement. After breaching the $50.85 initial target, resistance held at $51.62.

ICE July Brent crude futures climbed 26cts to $53.87 bbl settlement, moving off a $54.37 one-month high on the spot continuation chart. Having knocked down $53.89 initial resistance, Brent tested the $54.54 target, and the Brent premium to WTI eased 14cts a $3.14 bbl, off a $3.28 two-month high posted last Friday.

"From a technical standpoint the trend is up but subject to any surprise from OPEC," said analyst Brian LaRose at ICAP in Jersey City, N.J. "We are at the highest levels of a corrective activity, which sets up either another rally or a reversal lower depending on what OPEC decides on Thursday."

NYMEX June ULSD futures jumped 1.94cts to $1.6021 gallon settlement, off a $1.6080 fresh one-month spot high. June RBOB futures settled 1.03cts higher at $1.6626 gallon, off a $1.6779 one-month spot high.

The RBOB market flipped into bullish backwardation price structure with June RBOB contract closing at a 0.43cts premium to July contract ahead of the peak summer gasoline demand season. The next resistance pinned at $1.6755 and then at $1.7025.

"This is an opportunity to add length and if RBOB is able to take out $1.70 then we could see WTI going up to $60 bbl but if not then there's a technical sign that we've topped and prices will fall from there," said LaRose.

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