Oil Futures Climb on Improving Demand

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures were higher Friday morning ahead of the latest weekly rig count due out Friday afternoon. The morning gains follow choppy trading this week, as traders weigh improving demand and falling crude stocks in the United States against higher crude production domestically and by the Organization of the Petroleum Exporting Countries.

The International Energy Agency said Thursday that despite a sluggish first quarter, strong demand growth in the second half of 2017 through 2018 should speed up market rebalancing of demand and supply. Demand for OPEC crude is anticipated to rise steadily this year and reach 33.6 million bpd in the fourth quarter, up 1.0 million bpd versus the cartels June output.

IEA said capital expenditure on energy projects eased globally in 2016 and U.S. shale producers aren’t making profits at current oil prices below $50 bbl, leading analysts to speculate that very soon oil shale producers would stop adding rigs to the nation’s oil patch.

According to Baker Hughes, Inc., the number of rigs drilling for oil in the United States has with near consistency increased this year to a 27-month high of 763 as of the week-ended July 7, with the oil services firm to provide this week's changes in the count at 1:00 PM ET.

The Energy Information Administration midweek reported domestic crude production at 9.397 million bpd two-year high, up 910,000 bpd versus a year ago.

Oil inventories are starting to come down, albeit slowly. EIA on Wednesday reported a 7.6 million bbl draw for crude oil stockpiles to 495.3 million bbl, the lowest total since the final week of January.

Globally, Paris-based IEA said it will take longer to rebalance market supply and demand, as preliminary data shows only a moderate reduction in commercial oil inventories held by the 35 countries that are members of the Organization for Economic Cooperation and Development.

“Taking demand and supply together, the current market balance implies a global stock draw of 700,000 bpd in the second quarter of 2017,” said IEA. “Data for the quarter remains incomplete and we need to wait a little longer to confirm if the process of re-balancing has actually started in 2Q17.”

In early trade, NYMEX August WTI crude futures were up 40cts at $46.48 bbl, off a $46.72 one-week high and on track for the fifth straight day of gains. WTI is near a technically oversold condition with support this week holding at $44.09.

The Intercontinental Exchange September Brent crude futures contract was up 38cts at $48.80 bbl, edging off a one-week high of $49.06, with Brent premium over WTI little changed at $2.32 bbl.

The August ULSD futures contract was 1.90cts higher at $1.5107 gallon. August RBOB futures rallied 2.27cts to $1.5488 gallon, near a better than one-month spot high of $1.5500.

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