Oil Rallies in Early Friday Trade

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures rallied across the board Friday morning, with West Texas Intermediate and Brent crude on the Intercontinental Exchange at three and four day highs, respectively, on the back of geopolitical risks in the Middle East and strong economic and oil market indicators from the United States and China.

The tensions were spurred by President Donald Trump's decision this week to recognize Jerusalem as the capital of Israel and the death of former Yemeni President Ali Abdullah Saleh. There could be violence in Palestine heading into the weekend, analysts said. The Middle East is responsible for most of the world's oil supply and disruptions to oil flows in the region could tighten the oil market.

The market is also keeping an eye on demand, with the Labor Department this morning reporting the U.S. economy added 228,000 jobs in November and the unemployment rate held steady at a 4.1% rate 17-year low. Those numbers underpin market optimism and auger well for U.S. fuel demand.

In addition, Chinese customs data shows crude oil imports rebounded from a one-year low, rising in November to a near record high of over 9.0 million bpd from 7.3 million bpd in October. China's crude imports rose by 12% year-over-year during the first 11 months of 2017, the data shows. The positive data suggests improving demand by the world's top oil importing nation and the second biggest economy.

Meantime, media surveys this week showed production by the Organization of the Petroleum Exporting Countries declined in November to a five-month low, a sign that OPEC is serious about cutting production. The 1.8 million bpd oil production cuts by OPEC and their non-OPEC allies will run through December 2018 after last week's agreement to extend the supply policy.

Domestically, total commercial oil stocks in the United States declined 2.5 million bbl to 1.2496 billion bbl last week, the lowest since mid-August 2015, the Energy Information Administration reported.

The market awaits Baker Hughes's weekly oil rig count report due for release this afternoon.

In early trade, NYMEX January WTI crude futures contract climbed $1.01 to $57.70 bbl, off a $57.79 three-day high. ICE February Brent crude gained $1.14 to $63.34 bbl, off a $63.45 four-day high, trading at a $5.64 bbl premium to WTI.

NYMEX January ULSD futures advanced 3.13cts to $1.9283 gallon, off a $1.9319 four-day high. January RBOB futures increased 2.17cts to $1.7217 gallon, near a $1.7260 three-day high.

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