Oil Higher Monday Morning

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures rallied on Monday morning on technical support and bullish sentiment, with the global oil market seen rebalancing as demand improves while supply declines.

The Brent futures' rally on the Intercontinental Exchange widened the trans-Atlantic crude oil arbitrage, with November Brent crude contract posting a $6.36 premium over West Texas Intermediate crude at the top of the hour, nudging off a 28-month high of $6.65 early this morning.

There is growing consensus that the production cuts of 1.8 million bpd by the Organization of Petroleum Exporting Countries and their 10 non-OPEC allies will be extended beyond their March 2018 deadline. Over the past few weeks, several OPEC members and nonmembers have indicated they could extend the output cuts through June 2018 or even for the rest of 2018, while others are suggesting deepening the output cuts by 1%.

Kuwaiti Oil Minister Essam al-Marzouq said the output cuts were helping cut global crude oil inventories to their five-year average, the target stated by OPEC. Wire reports indicate a decision to extend the output cuts could be voted on before the end of this year, although Russian oil minister Alexander Novack has said January is the more likely time frame for the decision.

On Friday (9/22), Joint OPEC-Non-OPEC Ministerial Monitoring Committee held a meeting in Vienna to review compliance with the supply agreement and reported they achieved a 116% compliance rate in August.

They also said that in addition to stronger than previously anticipated demand growth in 2017, there was a 168 million bbl decline in crude oil stocks held by the 34 nations making up the Organization for Economic Cooperation and Development during the first eight months of 2017. As of the start of September, there was a surplus of 170 million bbl, they added.

Domestically, oil services firm Baker Hughes, Inc. reported the number of oil rigs in the United States declined last week by five to a 744 3-1/2 month low. This was the third straight weekly decline in the count.

On the NYMEX, speculators see an upside in the oil futures complex in the short term. Money managers carried 329,514 contracts of net market length and the complete noncommercial category a net 546,763 contract long side market exposure at the close on Sept. 19, according to the Commodity Futures Trading Commission's weekly Commitments of Traders report.

At 9:00 AM ET, NYMEX November WTI crude contract was 50cts higher at $51.16 bbl after trading thru resistance at $50.42 and to a four-month spot high of $51.39. ICE November Brent crude rallied 66cts to $57.52 bbl, off a $57.83 8-1/2-month spot high with resistance marked at $59.59.

In products trade, NYMEX October ULSD futures contract advanced 1.07cts to $1.8270 gallon, edging off a 28 month spot high of $1.8356. October RBOB futures were 1.76cts higher at $1.6860 gallon, off a three-month spot high of $1.6943 and trading at 4.39cts above the November RBOB contract. The backwardation indicates strong short-term demand for gasoline.

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