NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled near one-month highs Monday afternoon on improving sentiment after a decrease in U.S. crude oil production reported last week dovetailed with the first decline in the rig count in 24 weeks, while peak gasoline demand during the summer is seen drawing down inventory.
"The market is starting to realize that U.S. shale oil producers are pulling back," said analyst Phil Flynn at Price Futures. "The drop in rig-count and U.S. production in June has been a game changer and these things happened after that selloff in June. This is setting up what could be a strong rally in the second half of the year."
Oil services firm Baker Hughes, Inc. reported on Friday that the number of rigs actively drilling for oil in the United States declined by two to 756 during the week-ended June 30. Prior Wednesday, the Energy Information Administration showed U.S. crude production fell 100,000 barrels per day (bpd) from a two-year high to an 11-week low of 9.25 million bpd during the week-ended June 23.
The futures complex has rallied sharply since plunging into bear market territory in mid-June primarily on bargain hunting and short covering. Today capped an eighth-straight day of gains for NYMEX WTI and ULSD futures and the Brent contract on the InternationalExchange, as positive sentiment offset reports that production by the Organization of the Petroleum Exporting Countries increased in June due to higher output by Nigeria and Libya.
This week, oil inventory data for the week-ended June 30 due for release Wednesday and Thursday are expected to show stock draws of 3.0 million barrels (bbl) for crude oil, 1.7 million bbl for gasoline and 500,000 bbl for distillate fuels. Demand for fuel is expected to get an added boost in the third quarter as higher gasoline demand during the summer is seen accelerating with a strong economy.
The Institute for Supply and Management reported purchasing managers' index, a measure of manufacturing growth, beat expectations, rising to 57.8 points in June from 54.9 for May.
Still, the market is vulnerable to a downturn since global inventories aren't coming down fast enough. OPEC output rose 280,000 bpd to 32.72 million bpd in June despite a 15-month agreement by the cartel to cut output by 1.8 million bpd in an alliance with 10 non-OPEC producers.
Libyan oil output rose to slightly over 1.0 million bpd this weekend, while Nigerian supply is expected to reach 2.5 million bpd next month. Both countries are exempt from the current OPEC cuts.
NYMEX August WTI crude futures jumped $1.03 to a $47.07 bbl settlement, ending near a one-month spot high of $47.10. ICE September Brent crude futures gained 91cts to settle at $49.68 bbl and near a $49.72 one-month spot high. Brent futures widened its premium to WTI to $2.61 bbl from a four-month low at $1.88 bbl on Friday.
In products trade, August ULSD futures settled 2.97 cents higher at $1.5128 gallon, off a $1.5147 one-month spot high. August RBOB futures were 2.11 cents higher at a $1.5348 gallon settlement, edging off a $1.5396 one-month spot high.
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