OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange (ICE) continued to rally in early trade Wednesday as traders purchased contracts amid growing supply concerns ahead of Wednesday morning's 10:30 a.m. ET release of weekly supply data from the Energy Information Administration (EIA).
Prices extended gains in early trade Wednesday following cues from Tuesday's bullish American Petroleum Institute (API) supply report showing a 9.228 million barrel per day (bpd) decline in crude supplies for the week ended June 22. Supply at the Cushing, Oklahoma hub, the delivery location for the NYMEX West Texas Intermediate (WTI) crude futures, was off 1.74 million barrel (bbl), spurring gains for the contract, which has risen nearly 9% from late last week to more than $71 bbl.
Analysts note the large decline at Cushing are likely the result of an outage at Syncrude's 360,000 bpd upgrader near Fort McMurray, where a June 20 transformer trip is expected to keep the plant offline through July.
As Cushing supplies dwindle and WTI crude continues higher, the WTI-Brent spread, a key metric of U.S. oil export profitability, has narrowed to its lowest level since May 7 at $5.72 bbl.
The spread began narrowing ahead of the recent meetings by the Organization of the Petroleum Exporting Countries (OPEC) and their non-OPEC counterparts including Russia, when producers agreed to boost production by up to 1.0 million bpd starting July 1. The planned output boost comes amid supply issues from OPEC members Venezuela and Angola, and recent supply disruptions in Libya, and concern over the potential for lost exports from Iran later this year as U.S. sanctions take effect.
The agreed to hike lifts output to where the producers agreed to reduce production in late 2016, which runs through end year. Involuntary production declines, mainly from Venezuela, prompted the boost, but also cuts into limited spare capacity.
"I think spare production capacity in the next month or so is going to be near its lowest level in quite some time," said Phil Flynn, senior market analyst at Chicago-based Price Futures Group. "We could actually see it at 1% to 2% of daily consumption, so with each additional barrel OPEC produces it reduces spare capacity, so we really have very little room for error in the global marketplace."
Near 9 a.m. ET, the NYMEX August WTI futures contract stood 71 cents bbl higher at $71.24, while the September contract was 57 cents higher at $69.85 bbl.
ICE August Brent was up 68 cents to $76.99 bbl, while the September contract was 67 cents higher at $76.81 bbl.
NYMEX July RBOB contracts were 2.3 cents gallon higher at $2.0976 gallon, while the July ULSD contract was 1.84 cents higher at $2.1474 gallon.
On Friday, the July RBOB, ULSD and Brent contracts expire.
Brian Whary can be reached at email@example.com
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