Oil Futures Settle Higher on Demand

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled higher Thursday afternoon after shaking off early weakness and rallying on technical support and bullish demand expectations after the International Energy Agency said demand will accelerate in the second half of the year.

"This was a mixed-bag IEA report and the market initially fell because people were focusing on supply, but once they saw the report said about demand the market rebounded," said analyst Phil Flynn at Price Futures. "The report also warned that oil shale production is strong but profits are not... That's not sustainable in the long run, which means if they are not making profits they'll stop adding rigs."

The Paris-based IEA, in its July Oil Market Report issued this morning, said global demand growth jumped to 1.5 million barrels per day (bpd) during the second quarter from a 1.0 million bpd growth rate in the first quarter.

IEA's global oil demand forecast for 2017 was revised up by 100,000 bpd to 98.0 million bpd for an annual growth rate of 1.4 million bpd. For 2018, demand was projected to rise at a 1.4 million bpd rate to 99.4 million bpd.

Demand improved in China as well, according to IEA, with the world's second biggest economy boosting its oil imports during the first half of 2017 by 13.8% year-over-year to 8.55 million bpd.

Still, the oil futures rally was evidently curbed by a continuing supply glut, with the IEA saying global oil supply rose in June as producers opened the spigots.

The agency said global oil supply increased by 720,000 bpd in June to 97.46 million bpd, and the compliance rate by the Organization of the Petroleum Exporting Countries with its 1.2 million bpd in production cuts also plunged in June to a 78% six-month low from 95% in May.

In addition, stocks held by oil consuming nations that constitute the Organization for Economic Cooperation and Development barely changed, IEA indicated, with non-OPEC production expected to increase by 700,000 bpd in 2017 and 1.4 million bpd in 2018.

OPEC crude production also climbed 340,000 bpd in June to 32.6 million bpd after Saudi Arabia, Libya and Nigeria pumped at higher rates, IEA said.

Libya and Nigeria are exempt from the OPEC production cuts because internal chaos cut their output, but the two countries have managed to boost their combined production in recent months by more than 700,000 bpd, the IEA said.

At settlement, NYMEX August West Texas Intermediate crude futures were up 59 cents at $46.08 per barrel (bbl), up for the fourth straight session as support held at $44.09.

IntercontinentalExchange September Brent crude futures settled 68 cents higher at $48.42 bbl, with the Brent premium over WTI easing 16 cents to $2.34.

The August ULSD futures contract settled 1.80 cents higher at $1.4917 gallon while August RBOB futures eked out a 0.53-cent gain for a $1.5261 gallon settlement, with the futures contracts nearing oversold technical conditions.

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