Oil Futures End Higher on Strong Demand

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled higher Tuesday, rallying amid strong demand, expectations for another U.S. crude stock draw and reports production by the Organization of the Petroleum Exporting Countries declined in November.

"The turnaround for the market today was supported by demand and a Reuters report that November compliance rate for OPEC was 106%," said Phil Flynn, a senior analyst at Price Futures. "The market is realizing that demand is strong, and with OPEC back up, we are heading into the New Year with tighter supply."

OPEC and 10 non-OPEC producers last Thursday, Nov. 30, extended their output agreement under which they will continue to cut production by 1.8 million barrels per day (bpd) throughout 2018 to eliminate a global supply overhang. Ahead of the extension, the output cuts were scheduled to end at the end of March 2018.

Since the start of this year, the production cuts are credited with reducing commercial oil inventories held by the 35-member Organization for Economic Cooperation and Development by 240 million barrels (bbl) to above their five-year average to 140 million bbl over the five-year average at the end of October, OPEC said last week.

For the month on November, a Reuters' survey showed OPEC has shown strong compliance with the supply cut pledge, with its output falling last month by 300,000 bpd to its lowest since May.

A separate survey by Bloomberg shows OPEC production fell by 80,000 bpd to 32.47 million bpd in November from October. It is latest sign OPEC members are serious about cutting production.

Those surveys coincided with two other bullish reports. Saudi Arabia raised its official oil prices for January exports to Asia by 40 cents, which means the Kingdom will sell its oil to Asian customers at a premium of $1.65 bbl over the Oman/Dubai benchmark price. That's the strongest premium in three years and suggests demand is strong.

In addition, Goldman Sachs raised its 2018 price forecast for crude prices as they see the market rebalancing during the third quarter. They raised their 2018 Brent crude price forecast to $62 bbl from $58 while hiking West Texas Intermediate crude price to $57.50 bbl from $55 bbl.

The market now awaits U.S. oil inventory data for the last week of November due this afternoon from the American Petroleum Institute. A DTN survey showed an estimate of a crude stock draw of 3.75 million bbl for the week-ended Dec. 1, with gasoline stocks estimated to have increased by 1.4 million bbl and distillate inventories seen down 500,000 bbl.

NYMEX January WTI crude oil futures settled 15 cents higher at $57.62 bbl. ICE February Brent crude was 41 cents higher at a $62.86 bbl, with a $5.24 bbl premium over WTI. NYMEX January ULSD futures climbed 1.94 cents to $1.9139 gallon at settlement, with January RBOB futures 2.62 cents higher at $1.7184 gallon.

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