Oil Futures Gain on Optimism on Economy

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

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures were slightly higher Friday morning after the Bureau of Labor Statistics reported the labor market rebounded last month, adding to market optimism linked to expectations the Organization of the Petroleum Exporting Counties would agree to extend their production cuts through the end of next year.

The bureau said the economy added 261,000 jobs in October, less than the expected 315,000, but well above the dismal numbers for September that were affected by hurricanes in Texas and Florida. The new data suggests a strong U.S. economy would continue to support oil demand going forward.

On Wednesday, the Energy Information Administration showed oil stock draws in its report for the week-ended Oct. 27, but also an increase in domestic crude production to a one-month high of 9.553 million barrels per day (bpd) that was seen as bearish, with the data point stalling the recent advance for NYMEX West Texas Intermediate crude futures. The market now awaits a report on the U.S. oil rig count from Houston-based Baker Hughes, Inc. due later Friday.

NYMEX WTI crude and Brent crude futures on the Intercontinental Exchange are higher again this morning, with Brent trading near a 28-month spot high posted midweek and WTI near a ten-month high. NYMEX RBOB futures continue to trade in backwardation and at a two-month high.

The market is driven by bullish sentiment spurred by talk that OPEC and their 10 allied nonmember producers led by Saudi Arabia and Russia would agree to prolong their production cuts of 1.8 million bpd for nine more months after the current quota scheme expires in March 2018. They hope to finalize the new agreement over the next few months. The issue is likely to be debated when OPEC meets on Nov. 30 for its annual conference in Vienna. Their goal is to reduce global inventories to their five-year average and end a three-year global oil supply glut.

The market appears to have already priced in the prospect of a tighter oil market perhaps next year. Market psychology has become more bullish, open interest in NYMEX West Texas Intermediate reached a record high at 2.5 million this week, and money managers have added speculative length in NYMEX oil futures a report from the Commodity Futures Trading Commission shows. The CFTC will issue its weekly Commitment of Traders' report for the week ended Tuesday, Oct. 31, at 3:30 p.m. EDT.

In early trade, NYMEX December WTI crude futures were up 27 cents at $54.81 bbl. ICE January Brent contract was 45 cents higher at $61.07 bbl. NYMEX December ULSD futures were 1.62 cents higher at $1.8701 gallon and December RBOB futures gained 2.27 cents to $1.7907 gallon.

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

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Brian Milne