Oil Futures Up on Demand, Stock Draw

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled higher Tuesday afternoon with West Texas Intermediate crude posting a three-year high. WTI broke through initial resistance and rallied on an upward revision of global demand forecast by the Energy Information Administration and expectations U.S. crude oil inventories were drawn down again last week.

"There's a growing perception that demand is going to outstrip supply and traders were targeting $63 as a potential stop and we broke above that," said analyst Phil Flynn at Price Futures in Chicago.

EIA released its first monthly oil report for 2018 forecasting higher global demand and supply for this year and 2019. In the Short-Term Energy Outlook for January, EIA said it expects global oil demand to increase by 1.72 million barrels per day (bpd) to 100.11 million bpd this year, up from growth rate of 1.44 million bpd to 98.39 million bpd in 2017.

For 2019, EIA said global demand is forecast to increase at a rate of 1.65 million bpd to 101.76 million bpd. The demand growth was tied to strong economic growth in the United States and elsewhere, including China and India.

Meantime, a survey Tuesday showed the market expects U.S. crude stocks to have been drawn down for the eighth consecutive week during the week-ended Jan. 5 by 4.75 million bbl. U.S. crude inventories have declined by 34.5 million bbl since mid-November, EIA data released on Thursday, Jan. 4, shows.

The American Petroleum Institute will issue its weekly oil data for the first week of January at 4:30 p.m. EST and EIA will release its weekly oil report Wednesday morning.

The euphoria spurred by the demand forecast and lower U.S. crude stocks overshadowed the bearish rhetoric in the EIA's STEO, especially forecast for higher production in the U.S. and elsewhere. EIA forecasts total U.S. crude oil production to average 10.3 million bpd in 2018, up 1.0 million bpd from 2017. If achieved, the forecast 2018 output would be the highest annual average on modern record, surpassing the previous record of 9.6 million bpd set in 1970.

NYMEX February WTI futures settled $1.23 higher at $62.96 bbl, the highest settlement since early December 2014 after punching through $62.58 resistance and rallying to a $63.24 three-year high. The forward curve for WTI shows backwardation, which is a bullish market structure.

March Brent crude oil futures on the Intercontinental Exchange rallied $1.04 to $68.82 bbl, off a fresh 30-month high of $69.08. Brent traded at a $5.86 premium to WTI.

NYMEX February ULSD futures settled 2.08 cents higher at $2.0662 gallon. February RBOB futures contract jumped 4.44 cents to $1.8362 gallon, off a $1.8462 four-month, one-week high.

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