Oil Futures Settle at Fresh Highs

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures reversed higher after a weak start to the trading session, with a rally by RBOB futures leading the oil complex higher, while futures received additional support amid a bullish market sentiment as the global supply-demand disposition rebalances following a protracted supply glut.

"The oil market is supported by recent Saudi Arabian comments that they will continue to cut oil production," said Andy Lipow, president of Lipow Oil Associates in Houston. "The market sees demand continues to improve and so we are getting balanced."

Saudi Arabia and Russia last week signaled they will agree to prolong their deal to cut production by 1.8 million bpd for nine more months after the end of the current production scheme in March 2018.

The Saudis and Russians have been negotiating on behalf of the members and nonmembers of the Organization of the Petroleum Exporting Countries who are party to the current supply agreement. The production cuts have so far reduced a global supply and demand imbalance, and the market is likely to be tight by late next year if the cuts are extended through December 2018, said analysts.

The rally was also linked to position squaring ahead of the expiration of the December Brent crude futures contract on the Intercontinental Exchange and November ULSD and RBOB contracts on NYMEX.

The market awaits weekly oil data due at 4:30 p.m. EDT from the American Petroleum Institute while the Energy Information Administration will release its data at 10:30 a.m. EDT Wednesday.

Analysts estimate U.S. crude stocks declined by 3.0 million barrels (bbl) during the week-ended Oct. 27, while gasoline stocks fell 1.75 million bbl and distillate supply declined by 2.75 million bbl.

NYMEX December West Texas Intermediate crude settled 23 cents higher at $54.38 bbl, near an eight-month spot high of $54.58. The ICE December Brent crude futures contract expired 47 cents higher at $61.37 bbl and near a $61.41 28-month high on the spot continuous chart, rallying 9.4% in October. The January Brent contract settled 35 cents higher at $60.94 bbl.

In arbitrage trade, the Brent premium to WTI widened to a $6.98 bbl better than 24-1/2 month high, with a wider spread an incentive for U.S. crude exports.

NYMEX November ULSD futures expired 0.68 cent higher at $1.8845 gallon, off a $1.8896 28-month spot high, and posted a 6.7% monthly gain. The December contract settled 0.43 cent higher at $1.8805 gallon.

November RBOB futures jumped 1.55 cents to a $1.7796 gallon expiration, off a fresh two-month spot high of $1.7841, and posted a 14.4% gain for the month. The December contract was up 1.93 cents at a $1.7325 gallon settlement.

Brent, NYMEX ULSD and RBOB futures are in backwardation, a bullish market structure.

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