Oil Futures Gain Friday

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange gained on the session and the week, with West Texas Intermediate, ULSD and Brent futures all settling at fresh multi-month highs during the first trading session in autumn.

WTI futures have now settled above $50 bbl for three consecutive sessions and above resistance at $50.43 for the second straight session as it moves into the upper portion of its long-term $42 to $55 bbl trade range.

Market sentiment turned bullish in September following upside revisions to expected global demand for this year, a flattening in the U.S. oil-rig count, while production by the Organization of the Petroleum Exporting Countries declined in August and compliance with an agreement cutting output improved. Evidence is growing that the global oil market is rebalancing, with forced outages at refineries in Texas caused by Hurricane Harvey seen quickening the pace in drawing down inventory.

A five-member technical committee of OPEC and participating non-OPEC oil producers reported Friday that compliance with an agreement cutting about 1.8 million bpd of production reached 116% in August.

The Joint OPEC-Non-OPEC Ministerial Monitoring Committee said it "took note of recent market developments and expressed confidence that the oil market is moving in the right direction towards the objectives of the Declaration of Cooperation."

In addition to recent short-term outlooks for greater-than-previously expected demand growth in 2017, JMMC pointed to a 168 million bbl drawdown in commercial oil stocks by the 35 countries that make up the Organization for Economic Cooperation and Development during the first eight months of 2017. OPEC's goal is to completely erase the overhang against the five-year average, which began September at a 170 million bbl surplus.

The committee also pointed to other supporting factors underpinning price gains for crude, including a downtrend in floating storage since June, while Brent crude futures on ICE moved into backwardation, a market structure supporting further drawdowns.

Although settling at fresh highs, the market was generally complacent with the technical committee's findings, speculating ahead of Friday's meeting in Vienna that OPEC and non-OPEC would agree to extend their 15-month production agreement through June 2018 or to the end of 2018, or to deepen the production cuts by 1%.

There was also limited response to Baker Hughes, Inc.'s rig count report, with the oil services provider early afternoon reporting a five-rig decline in the number of oil rigs in active status in the United States this week, which was the third straight weekly decline, lowering the oil rig count to a 744 3-1/2 month low.

A softer U.S. dollar also lent support to the WTI contract, with the greenback slipping from a midweek one-week high triggered by the Federal Reserve's decision to start unwinding its years' long monetary stimulus efforts beginning in October, and signaling a hike in the federal funds rate was in the offing.

In their Commitment of Trader's report issued this afternoon, the Commodity Futures Trading Commission showed noncommercial traders expanded net-long positions in NYMEX ULSD and RBOB futures during the week-ended Tuesday (9/19) to eight-month highs amid long position accumulation.

Gasoline and distillate supplies have been drawn down sharply in the wake of hurricanes Harvey and Irma, prompting buying interest by speculators amid the tightening market. The sliding inventory for oil products also rallied crack spreads, prompting a number of refineries to postpone seasonal maintenance planned for the fall, which, in turn, boosts demand for crude.

"With refineries back online, the bid for crude oil has returned and the WTI crude futures has remained well supported above the 50.00 into late September," said Dan Hussey, senior market strategist with RJO Futures.

Hussey said, "Even though there was a net gain to [U.S. commercial crude] stockpiles this week, I see this as a trailing indicator to the weather effects of the last four weeks. Continued recovery in damaged regions should also spur additional consumption of fossil fuels, and in turn, demand for crude."

CFTC data shows WTI futures noncommercial traders in a one-month high net-long position through Tuesday's close, and the day before the expiration of the October contract on Wednesday afternoon, with short-covering ahead of the expiration the principal factor for the more bullish stance.

NYMEX November WTI futures eked out an 11cts advance to a $50.66 bbl fresh four-month high settlement on the spot continuous chart, with WTI up 77cts on the week.

November Brent crude traded on ICE advanced for the fourth consecutive session Friday and to an 8-1/2 month high settlement on the spot continuous chart at $56.86 bbl, up 43cts. Brent rallied $1.24 on the week. Brent is in backwardation, a bullish market structure implying a rebalancing market.

Brent's premium to WTI widened to a $6.20 bbl two-week high at settlement, with the spread topping $5 bbl for the first time in two years on Aug. 28 as Tropical Storm Harvey was pounding parts of the Texas coastline with a deluge of rain. The widening premium is seen prompting a surge in U.S. crude exports.

NYMEX October ULSD futures settled at a fresh 27-month spot high at $1.8163 gallon despite a fractional 10-point gain, while on the week edged up 1.75cts. November RBOB futures gained 2.46cts with a $1.6684 settlement while up 0.67cts from prior Friday.

Brian L. Milne can be reached at brian.milne@dtn.com

(AG)

Brian Milne