Oil Futures Up on EIA Data, OPEC Talk

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures rallied Wednesday afternoon, with October West Texas Intermediate crude oil settling above $50 per barrel (bbl) and at the highest level in four months, powered by bullish weekly U.S. oil data and on the prospect of prolonged cuts to oil production by the world's leading oil producing nations.

"The total U.S. petroleum inventory draw of 8.2 million barrels was bullish," said Houston-based oil analyst Kyle Cooper at IAF Advisors. "Total petroleum demand rose over 20 million barrels per day (bpd) for the first time since Aug. 25. Overall, the report was considered bullish."

WTI's rally came despite a crude oil stock build and higher domestic crude production. Instead, the market focused on demand, particularly the part of the Energy Information Administration's report showing refinery crude input jumped 1.094 million bpd to 15.172 million bpd as refinery runs spiked 5.5% to 83.2% of capacity during the week-ended Sept. 15.

The EIA report also showed a better-than-expected 5.7 million bbl stock draw for middle distillate inventories, with implied demand for the fuel up 207,000 bpd for the week reviewed. Gasoline data was mixed however, with EIA reporting a more-than-expected draw of 2.1 million bbl while implied demand for the fuel fell 178,000 bpd for the week.

The prospect of the Organization of the Petroleum Exporting Countries agreeing to extend oil production cuts beyond the March 2018 deadline in an effort to reduce global oil surplus also added to the oil futures rally, as did short-covering ahead of the October WTI expiration at the closing bell.

"There is a growing consensus that OPEC will extend the production cuts but they may not deepen the cuts," said analyst Phil Flynn at Price Futures Group in Chicago. "The only red flag is I'm hearing that Saudi Arabia may not attend Friday compliance meeting."

The Joint Ministerial Monitoring Committee comprising five OPEC and non-OPEC producing nations are set to meet Friday in Vienna to discuss the progress of their agreement to cut production by a combined 1.8 million bpd, which was reached last fall and implemented this year. Saudi Arabia and Russia, the world's two leading oil producers, are among the five members. The two nations plus Venezuela and Kazakhstan have discussed extending the cuts by three months through June 2018, but new reports indicate another option is to extend it for the rest of 2018.

Flynn said WTI's rally was curbed by technical factors and a stronger dollar after the U.S. Federal Reserve announced this afternoon plans to start the process of rewinding its asset purchase program, and signaled one more rate hike left this year.

NYMEX October WTI crude contract expired 93 cents higher at $50.41 bbl, with initial resistance at $50.42. The November WTI contract settled 79 cents higher at $50.69 bbl.

November Brent crude on the Intercontinental Exchange rallied $1.15 to a $56.29 bbl settlement, off a $56.48 fresh five-month spot high. Brent's premium over WTI widened to $5.88 bbl.

In products trade, NYMEX October ULSD futures contract advance 3.44 cents to settle at $1.8070 gallon, edging off a 26-1/2 month spot high of $1.8101. October RBOB futures were little changed at $1.6551 gallon, settling 3.93 cents above the November contract.

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