OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled higher today after reversing course in late morning trade in response to bullish supply data from the Energy Information Administration.
The sharp reversal follows recent weakness amid media reports of supply increases by Russia and Saudi Arabia, and suggests last week's bearish EIA report was a "one-off," with data affected by the Memorial Day holiday, analysts said.
EIA reported a larger-than-expected draw of 4.1 million barrels (bbl) in commercial crude oil stocks to 432.4 million bbl while 15.5% less than a year ago on increased refinery runs. Stocks remain in the lower half of the average range for this time of year. U.S. production posted a 100,000-barrel-per-day (bpd) increase to a record 10.9 million bpd, 16.8% higher than the corresponding week in 2017.
The decline in crude stocks coincided with another ramp up in runs at U.S. refineries, with the run rate showing a new 2018 high of 95.7% of capacity. Refiners ran 136,000 bpd more crude oil through their refineries last week than week prior at 17.505 million bpd.
Unexpected declines in gasoline and distillate inventories fueled higher prices for RBOB and ULSD futures, with EIA reporting gasoline stocks down for the first time in four weeks by 2.3 million bbl to 236.8 million bbl, a 0.9% drop. EIA reported gasoline output rose 793,000 bpd to 10.45 million bpd, while imports increased 47,000 bpd to 824,000 bpd during the survey period.
Wednesday's EIA data countered the prior week's reported steep declines in demand for oil products, with gasoline supplied to market up 903,000 bpd to an all-time high of 9.879 million bpd, spiking from a three-month low of 8.976 million bpd. Distillate implied demand jumped 902,000 bpd to 4.40 million bpd.
"Clearly the inventory numbers were all draws when the markets were expecting builds,…so the markets have been strong, reflecting the largest draw in crude oil," said David Thompson, executive vice president of Washington, D.C.-based PowerHouse a commodity and trade advisory. "Were back at 2 million bpd in crude oil exports, and at record high levels of domestic production, so going forward we're likely to see more US crude exports."
Thompson predicted the U.S. producers could get to a maximum of 3.0 million bpd of exports, given current infrastructure.
"Right now, we're most bullish on distillates," he said.
At the 2:30 p.m. EDT settlement, NYMEX July WTI futures were 28 cents higher to $66.64 bbl, its highest settlement in nearly two weeks, while August WTI futures rose 24 cents to $66.52 bbl.
ICE August Brent, settled 86 cents higher to $76.74 bbl, its highest settle since June 7, while September Brent finished 83cts higher at $76.48 bbl.
NYMEX July RBOB futures rose 3.533 cents to $2.1252 gallon, it highest price since June 1, while August RBOB futures jumped 3.2 cents to $2.1109 gallon in the seasonally backwardated market.
July ULSD rose 2.33 cents to $2.1851 gallon, its highest settle since May 31, while the August USLD contract increased 2.31 cents to $2.1875 gallon at settlement.
Wednesday, the Federal Open Markets Committee announced a decision to raise the target range for the federal funds rate to 1 3/4% to 2%, a quarter-point increase, citing a strong labor market, solid economic activity and a desire to keep inflation under 2% in the medium term.
Brian Whary can be reached at www.dtn.com
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