Crude Futures Settle at 2-Month Highs

NEW YORK (DTN) -- Spot-month oil futures on the New York Mercantile Exchange had their biggest weekly gains this year, and September West Texas Intermediate and Brent crude oil on the IntercontinentalExchange settled at their highest price points since May with RBOB and ULSD futures registering settlement highs last reached in mid-April.

The rally was underpinned by signs the domestic oil market is heading toward rebalancing supply with demand, while the Organization of the Petroleum Exporting Countries is reaffirming their efforts to cut the global supply overhang through an 18-month agreement capping their production.

"This was not a short covering rally, but rather a continuation of the rally we saw all week on signs oil inventories are dropping worldwide and demand continues to increase, although it will take time for the market to clean up [excess supply]," said Andy Lipow, president of Lipow oil Associates in Houston.

He added, "Crude and product inventories have been falling since March, and the market is concerned there could be problems during Venezuelan referendum this weekend, which might disrupt Venezuelan exports to the United States and we may have to replace those barrels."

Midweek data from the Energy Information Administration showed total U.S. petroleum stocks were drawn down by 9.5 million barrels (bbl) as products demand edged up 110,000 barrels per day (bpd) to above 21.0 million bpd.

U.S. crude oil inventories fell 7.2 million bbl to 483.4 million bbl during the week-ended July 21, the lowest since the first week of January, and supply dropped to a 1.4% deficit versus the same week in 2016. Total U.S. crude production fell 19,000 bpd to 9.41 million bpd during the week reviewed, up 900,000 bpd year-over-year, EIA said.

This afternoon, oil services firm Baker Hughes, Inc. reported the number of oil rigs operating in the United States rose by two to 766, a 28-month high. However, the rigs data, which shows a slowdown in new rig activation, was ignored as focus remained on the trend showing a steady decline in crude oil inventory. EIA also reported midweek that gasoline demand neared a record weekly high during the week ended July 21.

Overseas, Saudi Arabia, United Arab Emirates, Kuwait and Nigeria all pledged to further curb crude exports and production starting as early as next month.

Oil futures were also technically supported after the contracts cracked above short-term resistance points this week.

The September WTI crude oil futures contract settled 67 cents higher at $49.71 bbl, and near a $49.81 fresh eight-week spot high, gaining $3.94, or 8.6%, for the week.

September Brent crude oil futures on the ICE platform gained $1.03 to $52.52 bbl settlement, edging off a $52.68 nine-week spot high, and gained $4.46, or 9.3%, in value on the week. The Brent contract closed at a $2.81 bbl premium to WTI, a nine-week high, while the spread widened 52cts on the week.

The August ULSD futures contract settled 3.65 cents higher at $1.6397 gallon, edging off a 3-1/2 month spot high of $1.6424, and rallied 12.45 cents, or 8.2%, on the week. The August RBOB futures contract gained 3.15 cents to $1.6761 gallon at settlement, and near a $1.6801 13-week spot high, and advanced 11.28 cents, or 7.2%, on the week.

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

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