Oil Futures Rally at End of 2017

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures advanced during the final trade session of 2017, with the West Texas Intermediate contract settling above $60 per barrel (bbl) for the first time in 2-1/2 years. ULSD futures rallied on the session, ending 2017 at a fresh two-year, ten-month spot high on the back of sustained below normal temperatures in the U.S. Northeast, while RBOB futures was pulled higher to expire at a three-day high.

"Closing above $60 for WTI is a big deal," said analyst Phil Flynn at Price Futures. "It's significant because it came despite the fact that oil shale production has been rising the whole year. We never thought we'd get here. Looking ahead to next year, it means we'll continue higher because refinery demand is stronger and heating oil demand is also stronger."

Arctic weather has gripped the Midwest and Northeast regions, with the latter accounting for the majority of heating oil demand in the United States.

On Thursday, the Energy Information Administration reported a 400,000 barrel-per-day (bpd) surge in implied demand for distillate fuels to 4.326 million bpd during the week-ended Dec. 22. Total inventories for distillate fuels at 129.9 million bbl remained 21.7 million bbl, or 14.3%, below a year ago.

The WTI crude contract was boosted by a sixth straight weekly crude oil stock draw that pushed U.S. crude inventories down to a two-year low. At 431.9 million bbl as of last week, total crude stocks were 54.2 million bbl lower year-over-year, EIA data showed, while domestic crude production fell for the first time in 10 weeks, down 35,000 bpd last week to 9.754 million bpd.

In addition, Baker Hughes today reported that the U.S. oil rig count held steady for the second straight week at 747 while 222 higher than year ago. Flynn said this suggests oil shale production growth is slowing down.

NYMEX February WTI crude futures settled 58cts higher at $60.42 bbl, off a new 2-1/2 year spot high of $60.51. The contract is up 3.3% this week and 12.0% higher than where it stood at the close of 2016. ICE March Brent crude oil futures contract settled 71 cents higher at $66.87 bbl.

NYMEX January ULSD futures expired 2.34 cents higher at $2.0755 gallon, trimming an advance to a fresh two-year, 10-month high of $2.0839. The contract posted a 5.4% gain for the week and soared nearly 22.0% for the year. The February contract settled up 1.84 cents at $2.0681 gallon.

NYMEX January RBOB futures expired 0.62 cent higher at $1.7992 gallon, holding below Tuesday's $1.8099 six-week spot high with a $1.8023 intraday high, up 2.1% for the week and nearly 9.0% for the year. February RBOB futures inched up 0.12 cent to settle at $1.7958 gallon.

The rally this year was primarily underpinned by stronger than expected demand linked to robust U.S. economic growth, and the 1.8 million bpd in production cuts by the Organization of the Petroleum Exporting Countries and 10 non-OPEC producers that is set to continue through the end of 2018.

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