Oil Futures Rally to 1-Week Highs

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled at one-week highs Tuesday ahead of data that's expected to show stock draws for U.S. crude oil and gasoline, further slashing domestic surplus and tightening the market.

Tuesday's price action represented the longest winning streak in a month for the futures complex, aided additionally by a weaker U.S. dollar and short-covering on oversold market conditions after the futures complex plunged early last week into a bear market.

"The market had been under pressure but we've potentially reached the bottom, so that's why we are seeing short-covering amid expectation that inventory data will be positive," said Tom Bentz, vice president for energy derivatives at ABN AMRO in New York. "The selling has dried up and we are getting a rebound."

Others agreed.

"We are seeing short-covering on expectations of a draw down for crude due to Tropical Storm Cindy [that disrupted oil production last week in the Gulf of Mexico]," said analyst Phil Flynn at Price Futures Group in Chicago.

The American Petroleum Institute will release its oil inventory data at 4:30 p.m. EDT Tuesday, while the Energy Information Administration will issue its weekly data at 10:30 a.m. EDT Wednesday.

A survey of analysts forecast a 3.3 million bbl stock draw for crude oil, a 700,000 bbl draw for gasoline and a 200,000 build for middle distillates for the week ended June 23. The projected crude oil stock draw would double the five-year average draw of 1.5 million for this time of year.

U.S. refinery run rate is projected 0.5% lower at 93.5% for the week reviewed. Refinery runs often increase towards the summer peak demand season, and they averaged 93.0% last year and 91.7% over the past five years. Crude oil imports are seen down by 300,000 bpd to 7.6 million bpd.

However, domestic crude production probably rose again during the week ended June 23, said analysts, curbing the upside for oil futures. U.S. crude oil output surged during the week ended June 16 to a 9.35 million bpd fresh two-year high prior to a Baker Hughes report that showed the oil rig count increased for the 23rd straight week, up by 11 during the week ended June 23 to a 26-month high of 758.

Flynn also pointed to the weaker dollar, a downgrade of U.S. economic outlook by the International Monetary Fund and optimistic outlook for the euro-zone economy by European Central Bank President Mario Draghi as supportive of oil prices.

IMF is now projecting a 2.1% growth rate for 2017 and 2018, down from prior estimates of 2.3% and 2.5%, respectively, published in April. The IMF urged the U.S. Federal Reserve not to be aggressive in its plan to continue hiking federal funds rates. These comments were bearish for the U.S. currency.

NYMEX August WTI crude futures settled 86cts higher at $44.24 bbl, off a $44.44 six-day spot high and tested a $44.40 resistance. ICE August Brent crude oil futures settled 82cts higher at $46.65 bbl, moving off a $47.06 four-day spot high and tested initial resistance at $46.79. The Brent crude premium to WTI eased 4cts to $2.41 bbl.

NYMEX July ULSD futures rallied 3.35cts to a $1.4137 gallon settlement, off a six-day spot high of $1.4211 while challenging initial resistance at $1.4148. July RBOB futures settled 2.11cts higher at $1.4598 gallon, off a six-day high of $1.4691 and tested initial resistance at $1.4615.

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