Oil Futures Shallowly Mixed

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures were shallowly mixed Thursday morning as higher U.S. crude oil supply weighed against stronger demand, with oil futures overbought after recent gains and vulnerable to further profit-taking.

The market is also mulling tension in the Middle East that has added a risk premium to oil prices, and the likelihood of major oil producers extending their production cuts through December 2018, which recently boosted oil futures contracts to multi-month highs.

Data shows oil demand is strong both in the United States and in China, the world's two biggest oil-consuming nations.

The Energy Information Administration on Wednesday reported gasoline demand rose 35,000 bpd to 9.496 million bpd in the week ended Nov. 3, 3.1% above the same week in 2016. EIA showed demand for distillates jumped 952,000 bpd to 4.486 million bpd, 11.0% higher than a year ago. Refinery crude inputs surged 290,000 bpd as runs jumped 1.5% last week to 89.6% of operational capacity.

Gains for West Texas Intermediate futures were curbed by higher supply, with EIA data showing domestic crude inventories unexpectedly rose 2.2 million bbl last week and crude production rose 67,000 bpd to a 9.62 million bpd record high.

In China, crude oil imports fell 18% in October to a one-year low rate of 7.34 million bpd, but demand remains strong.

"We expect China's total products demand growth to average 0.52 million bpd this year and 0.41 million bpd year-on-year in 2018," said Barclays bank analysts. "We expect the growth to pick up again next year on higher import quotas set by the government and robust demand outlook."

The market continues to believe that the Organization of the Petroleum Countries will extend its agreement with 10 non-OPEC nations that cuts production by 1.8 million bpd through the end of March 2018 by nine months to the end of 2018, a move that would further tighten supply.

Meantime, tension between archrivals Saudi Arabia and Iran are heating up, with the Kingdom looking to reduce Tehran's influence in the Middle East. This follows an anti-corruption purge in Saudi Arabia's royal family over the weekend that raised implications of geopolitical risk. Both Iran and Saudi Arabia are members of OPEC.

NYMEX December WTI crude futures edged up 6cts to $56.87 bbl, trading off Wednesday's a 28-month high of $57.92. January Brent on the Intercontinental Exchange was 3cts higher at $63.52 bbl, trading at a $6.65 bbl premium to WTI. A wide arbitrage incentivizes exports of U.S. crude.

NYMEX December ULSD futures were 0.86cts higher at $1.9302 gallon and the December RBOB futures contract eased 0.34cts to $1.8179 gallon.

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