Oil Futures at Fresh Highs

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures rallied Wednesday afternoon with West Texas Intermediate crude and Brent crude trading on the Intercontinental Exchange settling at fresh three-year highs. The ULSD contract posted a near three-year high, with RBOB futures trading to a fresh four-month, three-week high.

The rally was spurred by the Energy Information Administration's weekly statistics showing a 10th straight weekly U.S. crude oil stock draw and a weaker dollar, with the greenback falling to the lowest level since mid-December 2014. U.S. Treasury Secretary Steven Mnuchin said the United States welcomed a weaker dollar.

"The fact that we've had ten weekly crude stock draws, along with a weak dollar are the perfect combination supporting the rally," said analyst Phil Flynn at Price Futures.

In its Weekly Petroleum Status Report for the week ended Jan. 19, the EIA showed a 1.1 million bbl crude oil stock draw to 411.6 million bbl, 76.7 million bbl or 15.7% lower than a supply on-hand a year ago.

Since Nov. 10, U.S. crude oil inventories have declined 47.4 million bbl or 10.3%, EIA data shows.

"The oil inventory trend is and remains very bullish," said Houston-based Kyle Cooper, an analyst at IAF Advisors. "U.S. total demand remains solid at 20.6 million bpd."

Crude stocks were drawn down 3.15 million bbl to 39.244 million bbl at Cushing, Oklahoma, the delivery point for NYMEX WTI crude futures, EIA reported, less than the API's reported 3.6 million bbl draw while more than an expected draw of 1.5 million bbl.

"The most bullish part of the crude data was the big stock drawdown at Cushing and that's why Brent/WTI spread shrank a lot today," Flynn said. "We now see psychological support for WTI because it has broken above $65, although the upcoming refiner maintenance season could ease runs and put pressure on the crude contract."

NYMEX March WTI crude oil futures settled $1.14 higher at $65.61 bbl, and has since traded at a $66.05 high. The ICE March Brent settled up 57cts at $70.53 bbl, and has since traded at a $70.94 three-year spot high. Brent settled at a $4.92 bbl premium to WTI, the narrowest spread since September 2017.

NYMEX February ULSD futures settled up 2.0cts to $2.1061 gallon, and has traded at a $2.1157 near three-year high on the spot continuation chart. February RBOB futures recouped early losses and settled 0.77cts higher at $1.9164 gallon, with the contract having since traded to a $1.9273 gallon four-month, three week spot high.

"[The EIA report] was again considered bearish for the gasoline crack," said Cooper. "We would note that the very low yields will turn around and that even as refinery runs continue to fall, a recovery in yields may result in output not falling quite as much as expected week to week."

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