Oil Futures Rally Ahead of EIA Report

NEW YORK (DTN) -- Spot-month oil futures on the New York Mercantile Exchange rallied Wednesday morning ahead of a weekly oil report due out at 10:30 a.m. EDT from the U.S. Energy Information Administration that's expected to show a stock-draw for domestic crude oil inventories.

The oil futures complex rallied overnight after the American Petroleum Institute late Tuesday reported crude inventories plunged 8.13 million barrels (bbl) during the week-ended July 7, with supply in Cushing, Oklahoma, delivery point for West Texas Intermediate crude futures falling 2.0 million bbl.

API reported gasoline stocks fell 801,000 bbl and distillate inventory levels surged by 2.1 million bbl versus respective consensus estimate for builds of 200,000 bbl and 700,000 bbl.

If confirmed by EIA, the reported U.S. crude stock draw might indicate the long-awaited market rebalancing is under way. The market will now focus on domestic crude production after the EIA's Short-term Energy Outlook released on Tuesday revised down by 100,000 barrels per day (bpd) estimated 2018 production to 9.9 million bpd.

The upside for oil futures was limited, however, by a somewhat bearish report issued this morning by the Organization of Petroleum Exporting Countries.

In its Monthly Oil Market Report for July, OPEC maintained its global demand growth estimate while raising 2018 demand estimates. The report suggested global demand growth for 2017 at 1.27 million bpd, unchanged from month prior at 96.4 million bpd average. For 2018, OPEC forecasts world oil demand will increase by 1.26 million bpd, below the current year's growth, to average 97.6 million bpd.

In June, OPEC crude production rose by 393,500 bpd to average 32.61 million bpd, the report said, citing secondary sources. The OPEC report showed global oil supply rose 660,000 bpd from May to 96.59 million bpd in June, with OPEC and Canada driving the growth.

Saudi Arabia reported producing 10.07 million bpd in June, up 190,000 bpd from May, while secondarily sourced data showed Saudi output rose 51,300 bpd to 9.95 million bpd. Nigeria reported producing 1.66 million bpd in June, up 168,000 bpd from May, while secondarily sourced data showed an increase of 96,700 bpd to 1.733 million bpd.

Secondarily sourced data showed Libyan output increased by 127,000 bpd to 854,000 bpd last month. Libyan officials told reporters last week that their production reached 1.0 million bpd a month earlier than their target August timeline.

OPEC members are putting pressure on Libya and Nigeria to cap their oil production. The two producers are exempt from ongoing OPEC agreement to reduce output by 1.2 million bpd from January 2017 to March 2018.

At 9 a.m. EDT, NYMEX August West Texas Intermediate crude oil futures were 95 cents higher at $45.99 bbl, near a $46.02 four-day high on the spot continuation chart. IntercontinentalExchange September Brent futures gained 85 cents to $48.37 bbl, off a four-day high of $48.43.

In arbitrage trade, the Brent contract traded at a $2.38 bbl premium to WTI, up 10 cents versus Tuesday.

August ULSD futures climbed 1.84 cents to $1.4947 gallon, near a $1.4991 four-day high, while the August RBOB futures contract rose by 1.78 cents to $1.5361 gallon, off a $1.5369 four-day high.

In currency trade, the dollar index eased after a prepared speech by US Federal Reserve Chair Janet Yellen before Congress showed she remains dovish in her monetary policy outlook. A weakening dollar supports oil futures.

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