Crude Futures Up on API Estimate

OLD BRIDGE, N.J. (DTN) -- New York Mercantile Exchange West Texas Intermediate crude oil futures and Brent crude oil on the Intercontinental Exchange settled higher, and oil products shallowly mixed Tuesday on expectations for a bullish American Petroleum Institute's weekly supply report and lingering support from Monday's monthly report from the Organization of the Petroleum Exporting Countries signaling world oil supplies could remain tight through 2019.

Traders estimate Tuesday's 4:30 PM ET weekly API supply report to show another significant draw on crude oil and product inventories. The API report and Wednesday's 10:30 AM ET report to be released by the Energy Information Administration are expected to drive crude prices, absent additional supply-related headlines from the Middle East.

Having established new spot contract highs overnight, futures values gave back gains on light profit taking just before the open, traders said, then turned higher as traders decided to get long ahead of the API report.

Brent crude, recently more reflective of increased geopolitical tensions in the Middle East, flirted with the significant $80 bbl mark, posting a trade at $79.47, the highest level in more than three years. Values later moved below the $79 bbl mark on profit taking, traders said. July ICE Brent crude settled at $78.43, up 20 cents on the day.

June WTI maintained support above the $70 bbl psychological level, finishing 35cts higher at $71.31 bbl, after hitting a new spot contract high of $71.92 bbl early in trade. NYMEX June RBOB futures were fractionally higher at $2.2048 gallon, up 0.46 cents, while the June ULSD contract fell fractionally to $2.2490 gallon, though still at 38-month highs.

"Geopolitical issues definitely have the market a bit skittish right now," said Stephen Schork, president of Villanova, Pa.-based Schork Report. "The (WTI) market appears to be getting a bit oversold at the moment having moved through the $70 bbl level."

Schork added the markets are waiting on the next headline to move higher.

"The markets may be moving higher ahead of the API report, but the big thing ahead is the EIA report," he said. "We'll see what that has in store for us tomorrow (Wednesday) morning."

OPEC's report hinted the global oil supply surplus is virtually gone, with commercial inventories held by the 35-country bloc Organization for Economic Cooperation and Development standing just 9.0 million bbl above the five-year average in March, which could mean that by the time data is published for May, inventories would have already fallen below average levels. The OPEC report showed a slight increase in output, rising by 12,000 bpd, driven by higher production from Saudi Arabia but also revealing deep declines in Venezuelan output.

Geopolitical risk and the possibility of reduced supplies have caused oil prices remain near 41-month highs following the May 8 decision by U.S. President Donald Trump to withdraw from the 2015 nuclear pact and its potential effect on Iranian oil exports. On May 10, overnight rocket attacks on Israel from Iranian positions in Syria and the resulting strong Israeli response also are keeping a floor beneath prices.

In the longer-term, supplies from Venezuela are expected to continue to decline as ConocoPhillips threatens to seize PDVSA assets in the Caribbean. A combination of reduced Venezuelan exports combined with a decline in Iranian oil exports, may create what some traders are calling a "perfect cocktail" for oil to hit $100 bbl this year or next.

Brian Whary can be reached at