Oil Futures Gain on Strong Demand

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures continued higher Thursday morning amid talk of strengthening demand and tightening supply.

"People are starting to realize that refineries are going to need a lot of oil to replenish the product supply lost due to Hurricane Harvey and maintenance season won't be normal because some refineries are delaying their maintenance programs, as gasoline demand is strong," said analyst Phil Flynn at Price Futures. "Every major reporting agency has raised their oil demand forecast."

He continued, "The impact on gasoline demand from the storm won't last, the IEA told us that, and there's post-storm demand that people forgot about. President Trump is now making deals with the Democrats and they could agree on tax cuts and infrastructure spending, which would spur further demand."

On Wednesday, the International Energy Agency raised its 2017 global oil demand growth estimate to 1.6 million barrels per day (bpd) from 1.5 million bpd, and indicated that a global surplus is beginning to shrink due to stronger-than-expected demand in developed nations in Europe and North America.

Moreover, production is declining. Global oil supply fell by 720,000 bpd in August to 97.7 million bpd, the first drop in four months, with production by the Organization of the Petroleum Exporting Countries down by 210,000 bpd to 32.67 million bpd in August, the first decline in five months, the agency reported.

The IEA's bullish sentiment was shared by Barclays' analysts who said in a research note that market balance is in store for next year, which should ensure an OPEC/non-OPEC deal remains in place beyond March 2018.

Barclays added, "Unrest in Iraq and Venezuela should keep output there in check, the contango in regional crude oil prices has dissipated, and stocks are gradually declining."

OPEC and their 10 nonmember producer allies have increased compliance with their agreement to cut production by 1.8 million bpd, and are now engaged in talks to prolong the cuts another three months through June 2018.

Compliance by OPEC increased from 75% in July to 82% in August while non-OPEC compliance topped 100%, IEA said in its report on Wednesday.

The bullish sentiment overshadowed weekly oil data from the Energy Information Administration showing a second straight build in U.S. crude oil inventories.

Flynn explained that traders and investors are bidding up the WTI contract on the belief Gulf Coast refineries currently resuming full run rates will require refinery feedstock.

Flynn also noted that a close above technical resistance at $50 per barrel (bbl) for the NYMEX October West Texas Intermediate crude contract would provide further support.

WTI cracked through $50 bbl for the first time in nearly five weeks, while November Brent on the Intercontinental Exchange maintained a better than $5 bbl premium to WTI.

At last look, NYMEX October WTI crude oil jumped $1.17 to $50.46 bbl, near a $50.50 better than 3-1/2 month high on the spot continuation chart. November Brent crude on the ICE platform gained 80cts to $55.96 bbl, edging off a five-month high on the spot continuation chart at $55.99.

NYMEX October ULSD futures were up 2.56 cents at $1.7941 gallon. October RBOB futures reversed higher from overnight losses, up 0.26 cent at $1.6499 gallon.

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