Oil Settles at Three-Week Highs

Oil Settles at Three-Week Highs

NEW YORK (DTN) -- Spot-month oil futures on the New York Mercantile Exchange settled at three-week highs Wednesday afternoon, rallying after an initial wobble on the back of statistics showing a bigger-than-expected draw for domestic crude oil inventories and improved demand for crude and gasoline.

"That was a big inventory draw and people have quit ignoring the fact that U.S. inventories are falling," said analyst Phil Flynn at Price. "This was a clean draw without any impact from the Strategic Petroleum Reserve. At the same time, it seems we have been underestimating demand and we saw today another increase in refinery runs."

Others agreed.

"Total U.S. petroleum demand of over 21 million bpd is also considered supportive," said Kyle Cooper at IAF Advisors. "The price reaction with gasoline leading the [oil] complex, crude barely higher and front month distillate lower is hard to explain."

The Energy Information Administration's report detailed a 6.5 million bbl crude stock draw down, surpassing an expected 5.25 million decline, with refinery runs climbing 0.7% to 94.1% and crude utilization rising 111,000 bpd to 17.1 million bpd during the week-ended Dec. 15.

This is the fifth straight weekly commercial crude stock draw reported by EIA, signaling a tightening domestic market. At 436.5 million bbl, U.S. crude stocks are now nearly 49 million bbl or 10.1% lower than a supply on-hand a year ago.

However, the report also showed crude stocks at Cushing supply depot in Oklahoma rose for the first time in six weeks, up by 754,000 bbl to 52.998 million bbl. Cushing is a crucial delivery point for West Texas Intermediate crude.

In addition, domestic crude oil production continued higher, up 9,000 bpd to a fresh 46-year high of 9.789 million bpd and 1.003 million bpd higher than a year ago.

On products, the report showed gasoline inventories increased by 1.2 million bbl last week, although much of that rise was due to blending components. The production of motor gasoline fell as well as supply, while implied gasoline demand increased by 335,000 bpd to 9.4 million bpd.

The report showed distillate fuel stocks increased 769,000 bbl although supply remains 16.1% below comparable period last year. Production fell along with demand that tumbled 454,000 bpd to 3.9 million bpd.

Also, the passage today by Congress of a $1.5 trillion tax bill, the biggest tax overhaul in nearly 30 years with steep tax cuts to U.S. corporations, is expected to spur more growth, which would generate more demand for oil and refined oil products, said analysts.

The market was also supported by a bullish outlook from Goldman Sachs bank, with the bank forecasting the market would rebalance by mid-2018. NYMEX February West Texas Intermediate crude oil futures settled 53cts higher at $58.09 bbl, off a one-week high of $58.12. The Intercontinental Exchange February Brent contract settled 76cts higher at $64.56 bbl and just shy of a $64.60 one-week high.

NYMEX January ULSD futures settled marginally higher up 0.43cts at $1.9442 gallon, posting the highest settlement since Nov. 27. January RBOB futures added 3.87cts finishing formal session trading at $1.7453 gallon that represents the strongest settlement in some three weeks.

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