Oil Futures Rally on Fundamentals

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled sharply higher Tuesday afternoon ahead of weekly oil industry data that could show stock draws for crude oil supply at the Cushing depot in Oklahoma and for gasoline and distillates.

The futures rally was also underpinned by stock market gains, heightened geopolitical risk in the oil-rich Middle East region, as well as speculation the global oil market may rebalance earlier than initially anticipated.

"What we saw today (Tuesday) is a market gaining on fundamentals, with demand strong globally and in the United States, and increasing geopolitical risks," said analyst Phil Flynn at Price Futures.

For the U.S., a survey shows crude oil inventories at the Cushing hub are seen down 500,000 bbl during the week-ended March 16, with gasoline supply estimated to have declined by 2.5 million bbl and for distillate stocks to have been drawn down 3.5 million bbl.

The American Petroleum Institute is set to report its oil data for the week-ended March 16 at 4:30 PM ET, and the Energy Information Administration is scheduled to release its weekly oil report at 10:30 AM ET Wednesday.

On the geopolitical front, ahead of his visit to the United States this week, Saudi Arabian Crown Price Mohammed bin Salman has said his kingdom would develop nuclear weapons if Iran did, ratcheting up pressure for the U.S. and Europe to reconsider a nuclear accord reached with Iran in 2015. Trump has threatened to decertify the deal if it's not changed to permanently stop Iran from acquiring nuclear weapons, a move that's likely to trigger a hostile response by Tehran.

"The meeting today between President Trump and Saudi Crown Price Mohammed bin Salman means we should expect more sanctions on Iran and Trump may pull out of the Iran nuclear deal," said Flynn.

Bloomberg News reported that a joint committee of the Organization of the Petroleum Exporting Countries and their 10 non-OPEC partners met over the weekend in Vienna to review compliance with their two-year production cuts, and determined that due to the success of their efforts to rid the market of a supply overhang, the oil market would rebalance during the second or third quarters. Analysts and some oil reporting agencies had indicated that the market won't rebalance until later this year.

The Bloomberg report said the joint committee determined that OPEC compliance with their supply agreement to cut 1.2 million bpd reached 142% in February while the non-OPEC compliance with their pledge to reducing supply by 580,000 bpd reached 130%.

In equity trade, the Dow Jones Industrial Average was up 150 points, the S&P 100 Index was up slightly and the Nasdaq 100 Index was up nearly 30 points ahead of their close this afternoon following steep losses a day earlier.

NYMEX April West Texas Intermediate crude oil futures expired $1.34 higher at $63.40 bbl, and near a $63.81 three-week high, with the May contract settling up $1.41 at $63.54 bbl. May Brent crude on the Intercontinental Exchange settled $1.37 higher at $67.42 bbl, and near a $67.88 three-week spot high.

April ULSD futures spiked 4.25cts to a $1.9495 gallon settlement, and near a three-week spot high of $1.9577, while April RBOB futures climbed 4.14cts to settle at $1.9659 gallon, near a fresh 6-1/2 month spot high of $1.9778.

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