Bullish EIA Data Spur Oil Futures Rally

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures rallied midweek with September West Texas Intermediate crude oil, and Brent crude oil on the IntercontinentalExchange, settling at two-month highs after the U.S. dollar index tumbled and the Energy Information Administration reported a massive draw for crude oil inventories in the United States.

The greenback dropped to a fresh 13-month low after the U.S. Federal Reserve announced that it was leaving the federal funds rate unchanged as expected, and that the central bank would begin unwinding its $4.5 trillion balance sheet "relatively soon."

The Fed also acknowledged that low inflation is here to stay, with the comment setting off a fresh selloff in the U.S. currency. A weaker dollar is bullish for oil futures because oil trades in dollars internationally.

However, the main driver for the oil futures rally was bullish supply data. The EIA's Weekly Petroleum Status Report detailed a 7.2 million bbl crude oil stock draw for the week-ended July 21 that was nearly three times the expected draw of 2.7 million bbl.

At 483.4 million bbl on July 21, U.S. commercial crude stockpiles were at the lowest level since the week-ended Jan. 6, flipping a year-on-year inventory surplus to a 1.4% deficit against the comparable year-ago period. The data included a crude oil stock drawdown of 1.7 million bbl at the Cushing, Oklahoma, delivery point for NYMEX WTI crude oil futures.

"The data for the week-ended July 21 was bullish in over view," said analyst Tim Evans at Citi Futures in New York, echoing other analysts.

"Another large total stock draw as total U.S. petroleum demand edged further above 21 million bpd," said Houston-based analyst Kyle Cooper at IAF Advisors. "There is still a lot of product in the U.S., but the inventory trends have clearly been bullish. Overall, [this is] a bullish report."

The September WTI crude oil futures contract settled 86cts higher at $48.75 bbl, ending near a $48.87 eight-week spot high. September Brent crude oil futures on the ICE platform climbed 77cts to a $50.97 bbl settlement, and near a $51.06 eight-week spot high. The Brent contract closed at a $2.22 bbl premium to WTI, easing 9cts from day prior.

The August ULSD futures contract settled 2.68cts higher at $1.5953 gallon, off a nine-week spot high of $1.5977. August RBOB futures advanced 2.11cts to $1.6173 gallon at settlement, off a $1.6202 near one-week high.

The August contract closed at a 2.29cts premium to the September contract, with the backwardation reflecting summertime demand for gasoline. The EIA report showed implied motor gasoline demand rose 229,000 bpd to 9.821 million bpd last week, 0.2% higher than the same week in 2016.

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