NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled higher Tuesday afternoon, boosted by expectation U.S. oil inventories declined last week and on intensified efforts by the Organization of the Petroleum Exporting Countries to reduce a lingering global oil supply overhang.
"The Saudis are reducing exports next month, United Arab Emirates said they will cut production further in September, Nigerian accepted to be under quota scheme, and OPEC is doing a better job of compliance," said analyst Phil Flynn at Price Futures.
Saudi Arabian energy minister Khalil al-Falih announced Monday that the kingdom would limit its oil exports in August at 6.6 million barrels per day (bpd), down nearly 1.0 million bpd year-over-year. The export reduction is not only because the Saudis seek to rebalance the market faster and raise oil prices, but also because they need to use more oil domestically, said Flynn.
Nigeria promised to cap its output once it reaches and stabilizes at 1.8 million bpd, having been exempt from OPEC cuts of 1.2 million bpd in crude oil production. The West African nation expects to reach that level of production over the coming months. On June 12, OPEC said Nigeria reported producing 1.66 million bpd of crude in June while secondary sources reported Nigerian production at 1.73 million bpd.
In a statement Monday following a meeting in St. Petersburg, Russia, on compliance with the production cuts, OPEC demanded that its members fully comply with their pledges to reduce output. There was also a recommendation to prolong the duration of the cuts beyond March 2018, although an agreement wasn't reached on that point.
OPEC said commercial oil stocks held in the developed countries that are members of the Organization for Economic Cooperation and Development have been drawn down 90 million bbl during the first half of 2017, although commercial inventory was 250 million bbl above their five-year average in June.
Domestically, crude inventories are also falling, with signs pointing to a slowdown in production. Total crude supply has dropped from its March peak of about 538.0 million barrels (bbl) to a six-month low of 490.6 million bbl as of the week-ended July 14, the Energy Information Administration reported last week.
Saudi minister al-Falih noted that while the U.S. oil rig count and production accelerated in the last few months with the recovery in oil prices, the sharp rate of increase in the rig count has started to ease. On Friday, the rig count fell by one to 764, according to oil services firm Baker Hughes, Inc.
The American Petroleum Institute will release its oil supply data for the week-ended July 21 to paying clients at 4:30 p.m. EDT. A DTN survey showed the market expects the data to show crude oil stockpiles were drawn down by 2.7 million bbl while gasoline stocks were drawn down 1.2 million bbl and distillate fuels supply tumbled 2.5 million bbl. EIA will issue its data Wednesday.
The September NYMEX West Texas Intermediate crude futures settled $1.55 higher at $47.89 bbl this afternoon, near a $47.97 six-week spot high, settling above resistance at $47.02.
"Closing resistance is really important because we could extend the rally tonight if the API is positive," said Flynn.
September Brent crude futures on the IntercontinentalExchange climbed $1.60 to a $50.20 bbl settlement, trading at a $2.31 bbl premium for WTI. This is also the first Brent settlement above $50 since June 6.
The NYMEX August ULSD futures contract spiked 5.16 cents to a $1.5685 gallon settlement and August RBOB futures settled 3.94 cents higher at $1.5962 gallon. The August RBOB contract closed at a 2.42 cents premium to the September contract.
In currency trade, the U.S. dollar index plunged to a 13-month low as the U.S. Federal Reserve today started its two-day policy meeting. A change to the federal funds rate is not expected to be reached at this meeting. The dollar and U.S. crude oil often trade inverse to each other.
George Orwel can be reached at email@example.com
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