Oil Up Ahead of Tuesday's WTI Expiry

OLD BRIDGE, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and the front-month Brent contract on the Intercontinental Exchange settled higher Monday on short covering after testing key support points last week, and ahead of Tuesday's expiration of the September West Texas Intermediate crude oil contract and weekly supply data from the American Petroleum Institute.

NYMEX September WTI futures settled up $0.52 at a $66.43 four-session high, and outpaced the gain by the October contract, which settled up $0.21 at $65.42 bbl in the backwardated market with the calendar spreads widening.

"This could mean that U.S. refiners could continue to process more crude which could pull the back months up as well," said Phil Flynn, senior market analyst with Chicago-based Price Futures Group. The Energy Information Administration reported U.S. refinery crude inputs at a near record high of 17.981 million bpd in its most recent report through Aug. 10, with the refinery run rate at a 20-year high 98.1% of capacity.

Flynn expects domestic commercial crude stocks to show a 3.0 million bbl drawdown for last week following prior week's unexpected 6.8 million bbl build underpinned by a 1.083 million bpd jump in imports to more than 9.0 million bpd. He expects strong refinery output to push gasoline stocks up 2.0 million bbl and distillates to show a 1.0 million bbl build.

The API will publish its weekly data at 4:30 PM ET, with the EIA their report at 10:30 AM ET Wednesday.

The advance in WTI futures came despite an announcement from the Department of Energy that it would sell 11.0 million bbl of sour crude oil from the U.S. Strategic Petroleum Reserve with deliveries expected in October and November. Bids are due by Aug. 28.

"I think the SPR sale already may have been to a large extent factored into the market," said Flynn. "The Trump administration already has made it clear that it would draw on reserves if needed. It's already been through Congress so it's really not a large shock."

NYMEX September RBOB futures settled up 3.42 cents at a $2.0151 gallon four-session high, and September ULSD futures gained 1.56 cents with a $2.1138 gallon settlement following inside trade.

ICE October Brent crude settled up $0.38 at a $72.21 bbl four-session high. Brent's premium to WTI narrowed to a $5.78 bbl three-day low.

Brian Whary can be reached at brian.whary@dtn.com