Oil Advances Amid Technical Rebound

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange and the front month Brent contract on the Intercontinental Exchange settled higher amid a technical rebound following Wednesday's steep losses sparked by bearish data showing big builds in oil products during the final week of November.

The upside reversal followed tests of technical support by West Texas Intermediate and Brent crude futures, and on market sentiment that the midweek selloff was overdone. An ongoing drawdown in crude stocks, a high rate of refining activity, and recent questions regarding federal forecasts for shale oil production converged to rally oil futures today, more than halving Wednesday's losses.

NYMEX January WTI futures settled up 73cts at $56.69 bbl, reversing higher from a $55.82 bbl fresh two-week low traded overnight, with support marked at the $55.04 retracement point. ICE February Brent crude settled 98cts higher at $62.20 bbl following inside trade after sinking to a better than two-week spot low at $61.13 bbl, holding above support at the mid-November low of $61.08 bbl.

NYMEX January heating oil futures settled 3.57cts higher at $1.8970 gallon after trading at a fresh better than one-month low on the spot continuation chart of $1.8597 gallon overnight. Technical support is marked at the $1.8185 retracement point.

NYMEX January RBOB futures settled 3.91cts higher at $1.70 gallon following inside trade, and above Wednesday's $1.66 gallon two-week spot low. Support for the gasoline contract is found at $1.6526 gallon. The Energy Information Administration midmorning Wednesday reported a 6.8 million bbl build in gasoline stocks to 220.9 million bbl that was well above expectations and an unexpected 1.7 million bbl increase in distillate stocks to 129.4 million bbl. The product supply builds were driven, in part, by sluggish demand that raised concern that a key driver to this year's oil futures rally was petering out.

However, a closer look at the weekly data set shows the product builds were also generated by higher refinery runs during the week-ended Dec. 1, which jumped 1.2% to 93.8% of operable capacity, the highest run rate since pre-Hurricane Harvey. It was the second straight week in which crude inputs at U.S. refineries topped 17.0 million bpd, up nearly 200,000 bpd at 17.195 million bpd, which last occurred in August.

EIA reported the fourth consecutive weekly drawdown from commercial crude stocks during the week profiled, down 5.6 million bbl to 453.7 million bbl, while down nearly 11.0 million bbl over the most recent four-week period. Moreover, total U.S. commercial oil stocks declined 2.5 million bbl to 1.2496 billion bbl, the lowest supply point since mid-August 2015.

Today's upside rebound also follows a recent report from MIT that suggests the EIA has overstated expectations for U.S shale oil production growth and pressure from investors that producers focus on return on investment and not volume.

"[A]s companies have pumped more, investors have started to pull back," said Chicago-based Phil Flynn, senior market analyst with The PRICE Futures Group.

Citing EPFR Global, Flynn said the fund-data tracker indicated roughly $800 million flowed out of energy-focused equity funds in 2017 through November compared with inflows of over $6 billion in 2016.

Brian Milne can be reached at brian.milne@dtn.com

(BE)

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