Oil Rebounds in Thursday Trade

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures advanced Thursday morning in a technical rebound after a steep sell-off a day earlier spurred by increases in U.S. oil products inventories and higher domestic crude oil production.

Although the short-term trends for the NYMEX contracts remain down, support levels are holding amid oversold conditions, and the market appears to be ready to resume its recent upward trajectory. The gains are also sustained by a U.S. crude stock draw and optimism about production cuts by the Organization of the Petroleum Exporting Countries are 10 nonmember producers allied with the oil cartel.

"We are turning a corner because the selloff was overdone, but we are not out of the woods yet," said analyst Phil Flynn at Price Futures. "Technically, we see the big numbers to watch are support at $55.50 and resistance at $57.50 for West Texas Intermediate crude contract."

In early trade, NYMEX January WTI crude futures contract climbed 36cts to $56.32 bbl, bouncing off a $55.82 two-week low. ICE February Brent crude gained 50cts to $61.72 bbl, reversing off Wednesday's $61.13 three-week spot low.

NYMEX January ULSD futures advanced 1.13cts to $1.8726 gallon, bouncing off Wednesday's $1.8602 four-week spot low. Support for the spot month ULSD contract is pegged at $1.8185. January RBOB futures increased 1.42cts to $1.6751 gallon, reversing off a $1.66 fresh six-week spot low posted Wednesday. RBOB futures face a test of support at $1.6526.

Flynn said the market realizes that despite high products inventories, domestic crude oil stocks have been falling in recent weeks, which continued last week.

"I think demand and supply numbers were skewed because of the Thanksgiving holiday," he said. "There's a possibility that demand was understated and supply was overstated [in the EIA data], so there's going to be a period where the market levels off."

The Energy Information Administration's supply report Wednesday had mixed statistics. On the bullish side, the report showed U.S. crude stockpiles were drawn down by 5.6 million bbl last week, including a 2.8 million bbl decline in stocks at Cushing, Oklahoma, the delivery point for WTI. That draw was accompanied by a 1.2% hike to 93.8% in refinery utilization, and crude inputs rose 192,000 bpd for the week-ended Dec. 1.

Those bullish statistics were however overshadowed by a 6.8 million bbl spike in gasoline inventories, and an unexpected 1.7 million bbl rise in distillates supplies last week. Also, production of distillates fuel rose by 118,000 bpd to a record high at 5.402 million bpd.

Globally, media surveys on Tuesday showed OPEC production declined last month, suggesting strong compliance with their pledge to rebalance the market. A Reuters' survey showed OPEC output in November fell 300,000 bpd. A Bloomberg survey showed OPEC output fell by 80,000 bpd to 32.47 million bpd in November, a five-month low. OPEC will release November production data in its Monthly Oil Market Report scheduled for release on Dec. 13.

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