Oil Rallies in Tuesday Morning Trade

NEW YORK (DTN) -- New York Mercantile Exchange (NYMEX) spot-month oil futures rallied to fresh highs Tuesday morning on the back of a rebound by equities, expectations for draws in domestic petroleum inventories and the prospect of the market rebalancing earlier than initially thought.

Ahead of its expiration Tuesday afternoon, April West Texas Intermediate crude oil futures posted a $63.30 barrel (bbl) three-week high in early trade and was up $1.14 at $63.20 bbl at last look, with the May contract rising $1.19 to $63.32 bbl. May Brent crude on the Intercontinental Exchange was $1.20 higher at $67.25 bbl, trading near a $67.34 three-week high on the spot continuation chart.

The April RBOB futures contract climbed 3.23 cents to $1.9572 gallon, off a fresh 6 1/2-month spot high of $1.9616, while April ULSD futures gained 3.70 cents to $1.9440 gallon, near a three-week spot high of $1.9459.

On Wall Street, the Dow Jones Industrial Average and S&P 100 Index are both set to open higher Tuesday morning after Monday's sell-off that was led by a 7% plunge in Facebook shares, with the stock market rising ahead of the first policy meeting by the U.S. Federal Open Market Committee under new Fed Chairman Jerome Powell.

On supply, U.S. crude oil inventories are expected to have declined during the week ended March 16 by 2.0 million bbl, with stocks at the Cushing hub in Oklahoma seen down by 500,000 bbl, said Phil Flynn, an analyst at Prices Futures. Pundits also estimate gasoline supplies will be shown to have declined by 3.0 million bbl, and distillate supplies by 4.0 million bbl.

Globally, a joint committee of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC partners met this past weekend in Vienna to review compliance with their two-year production cuts of 1.8 million barrels per day (bpd), and determined that due to the success of their efforts in cutting inventories, the oil market will rebalance during the second or third quarters, according to a Bloomberg News report.

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

The report coincides with planned talks Tuesday between President Donald Trump and Saudi Arabian Crown Prince Mohammed bin Salman. Salman said last week that his kingdom would develop nuclear weapons if Iran did, ratcheting up geopolitical risk in the oil-rich Middle East. Trump has been hostile to the Iran nuclear accord reached by the U.S. and Europe with Tehran in 2015, and has threatened to decertify the agreement.

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