Oil Futures Climb on Firm Fundamentals

NEW YORK (DTN) -- New York Mercantile Exchange spot-month West Texas Intermediate crude oil futures settled unchanged on the day while RBOB and ULSD futures rallied Friday, with the three contracts as well as Brent futures on the Intercontinental Exchange all posting weekly gains.

"The WTI contract and the crude market in general rallied this week as the International Energy Agency increased its demand forecast for 2017 and 2018 while stocks declined, and the IEA sees inventory rebalancing [within reach]," said Andy Lipow, president of Lipow Oil Associates in Houston.

Early this week, the Paris-based IEA, the Organization of the Petroleum Exporting Countries and the Energy Information Administration revised up their global oil demand estimates while reporting lower OPEC output in August.

IEA raised its 2017 global demand estimate by 100,000 barrels per day (bpd) while OPEC adjusted up its estimate by 50,000 bpd and EIA lifted its estimate by 155,000 barrels (bbl) versus their respective August figures.

On supply, IEA said OPEC production fell 210,000 bpd from a 2017 high to 32.67 million bpd in August, the first decline for the cartel in five months. Citing secondary sources, OPEC said production by its members fell in August by 79,000 bpd to 32.76 million bpd.

NYMEX October WTI crude settled flat at $49.89 bbl this afternoon, having pulled back from Thursday's $50.50 3-1/2 month high on the spot continuation chart amid technical pressure, but gained 5.1% for the week, the best weekly showing in about six weeks.

There was position squaring ahead of the expiration of options on the October WTI contract this afternoon.

"We had options expiring today and there was a battle for WTI to close above $50 but it couldn't do it, which was disappointing," said analyst Phil Flynn at Price Futures.

"What we saw was a lot of spread trading, with WTI against Brent," said Jim Ritterbusch, president of Ritterbusch Associates in Galena, Ill.

Analysts said WTI and Brent futures remain well supported in the short term but the gasoline rally is overdone, so a downward revision should be expected in the next week or so.

"Crack spreads are strong at the moment, but they are likely to ease going forward as we start to rebuild gasoline inventories depleted by Hurricane Harvey," said Ritterbusch.

The optimism about crude is also based on U.S. recovery from hurricanes Harvey and Irma. According to Houston-based consulting firm IHS, 13 of 20 affected Texas refineries were at or near normal operating rates and another five were restarting or ramping up. They are expected to take in more feedstocks over the coming weeks, with some delaying seasonal maintenance, said analysts.

Also, Houston-based oil services firm Baker Hughes, Inc. on Friday reported the number of oil rigs operating in the U.S. declined for a second week, down seven to a 749 three-month low this week, while up 333 versus a year ago.

November Brent crude futures settled 15 cents higher at $55.62 bbl, while 3.4% higher on the week, and closed at a $5.73 bbl premium to WTI. NYMEX October ULSD futures settled up 2.13 cents at $1.7988 gallon while posting a 1.9% weekly gain. October RBOB futures were up 3.30 cents at $1.6617 gallon at settlement, adding 0.8% for the week.

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