CRANBURY, N.J. (DTN) -- West Texas Intermediate crude futures on the New York Mercantile Exchange, and Brent crude on the Intercontinental Exchange, settled slightly higher Thursday after consolidation trade, while ULSD futures raced to a fresh 29-month high as an arctic blast takes aim at the U.S. Northeast this weekend. NYMEX RBOB futures dipped on the session following inside trade, holding below Wednesday's better-than two-month high.
Cold air blowing southeast from Canada amid forecasted snowstorms and squalls is set to bring the first blast of winter weather into the U.S. Northeast this weekend, lifting demand for heating oil in the region. The winter weather is not expected to last long in the region, but the early blast of cold does have a psychological effect on the market while seen supporting strong demand for distillates which surged 952,000 bpd to a 4.486 million bpd two-month high in late October, early November, data released Wednesday by the Energy Information Administration shows.
The early winter weather follows two very mild heating season for the U.S. Northeast, which accounts for the largest concentration of consumers and small businesses that use heating oil for their space heating needs. DTN forecasts a colder winter in the Northeast this season, including early bouts of cold air masses.
The rally in NYMEX ULSD futures comes even as heating oil accounts for a smaller segment of the distillate pool that has mitigated the seasonal effect of the former heating oil contract, which traditionally peaked during the winter months.
The cold weather follows larger-than-expected drawdowns from distillate and gasoline inventories during the week-ended Nov. 3 amid strong demand. EIA reports distillate demand cumulatively through Nov. 3 averaging 4.046 million bpd, 277,000 bpd or 7.3% above the comparable year-ago period.
The EIA reports total oil products supplied to market at a 21.301 million bpd 10-week high last week, which was also the fourth highest weekly demand rate in 2017. Strong U.S. demand is joined by greater oil consumption globally, including in China, than previously expected, which has been a bullish feature in oil trading so far in the fourth quarter.
Otherwise, oil futures consolidated within this week's trade range following WTI and Brent's upside breakouts on Monday sparked by a weekend purge in Saudi Arabia as Crown Prince Mohammed bin Salman consolidates power amid aggressive social and economic reforms he is directing domestically and Iran's rising influence within the Middle East. Changing dynamics in the Middle East, including the resignation of Lebanon's Prime Minister Saad Hariri who said he feared for his life as Iran and its ally Hezbollah effectively control Lebanon, have lifted the geopolitical premium in oil prices.
Oil futures have trended higher since late in the third quarter as strong demand and production cuts by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producers drain a three-year long global oil surplus. OPEC will hold their biannual meeting Nov. 30 when they will host their non-OPEC producers, with discussions to include extending their 15-month agreement cutting 1.8 million bpd in oil production from the end of March 2018 until the end of 2018.
Moderating U.S. oil production growth in the third quarter also lent upside support for oil futures, although output is again climbing at a quicker pace. The EIA reported U.S. oil production increased for the third consecutive week last week to 9.62 million bpd, quickly closing in on the recent high registered in April 2015 at 9.627 million bpd.
On Tuesday in its Short-term Energy Outlook, EIA said it expects U.S. crude oil production to reach a record high annual rate at 9.9 million bpd in 2018, up from 9.2 million bpd estimated for this year, and above the previous record of 9.6 million bpd set in 1970.
NYMEX December WTI futures settled up 36cts at $57.17 bbl, holding below Wednesday's $57.92 28-month high on the spot continuous chart, and resistance at $58.32 bbl. ICE January Brent crude settled up 44cts at $63.93 bbl, after trading on Tuesday at a $64.65 better-than 28-month spot high, with retracement resistance found at $65.80 bbl.
NYMEX December ULSD futures settled up 2.53cts at $1.9469 gallon after trading at a $1.9527 29-month high on the spot continuous chart, testing resistance at the June 2015 $1.9526-$1.9539 double top. NYMEX December RBOB futures settled down a fractional 16 points at $1.8197 gallon, after trading Wednesday at a better than two-month spot high of $1.8402 gallon.
Brian Milne can be reached at firstname.lastname@example.org
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