Oil Up Ahead of EIA Data

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange reversed higher early Wednesday following Tuesday declines, as a late-Tuesday supply report from the American Petroleum Institute revealed an unexpected, though slight, build in crude inventories and much less-than-expected increases in both gasoline and distillate stocks.

Traders are keen to see whether this week’s API report is confirmed by the Energy Information Administration’s weekly supply report expected at 10:30 AM ET Wednesday.

API data showed commercial crude stocks rose a paltry 38,000 bbl for the week ended Aug. 27 against market expectations for supply to drop 500,000 to 700,000 bbl, while gasoline stocks rose 21,000 bbl against calls for a 200,000 to 400,000 bbl build. Distillates increased 982,000 bbl against calls for a 1.4 to 1.5 million bbl build.

Supplies at the closely-watched Cushing, Oklahoma, tank farm increased 130,000 bbl, API said, that would mark the third weekly build at Cushing if confirmed this morning by the EIA. EIA last reported inventory at 24.2 million bbl at the tank farm, which serves as the delivery location for the NYMEX West Texas Intermediate crude oil contract.

“API crude inventories really didn’t move much which could be seen as a disappointment for the market, on the other hand crude is being supported by reports of terminal damage in Venezuela as well as reports of a significant decline in Iranian crude exports,” said Andy Lipow, president of Houston-based Lipow Oil Associates. “We’re also hearing reports of a 7% year-on-year increase in Chinese oil demand.”

Overnight media reports that a ship crash closed the main gateway for crude cargoes at Venezuela's export facility in the Caribbean following the recent settlement of claims by the Maduro government with ConocoPhillips that had seized the asset. Venezuela's oil production has plummeted amid economic collapse and more than a decade of mismanagement, with output expected to drop to 1.0 million bpd by year's end from just under 1.3 million bpd in July.

The market is also supported amid overnight reports from the Wall Street Journal indicating September crude exports from Iran could decline to 1.5 million bpd from 2.3 million bpd in June ahead of the official start of U.S. sanctions on those sales in November.

The United States reimposed phased-in sanctions on Iran after withdrawing from the 2015 Iran nuclear accord in May. The first phase of economic sanctions, which began Aug. 6, are reported to be having a greater-than-expected effect on Iran’s economy, while formal oil sanctions could slash exports by as much as 1.5 million bpd after they take effect on Nov. 4.

Near 9:00 AM ET, the October NYMEX WTI contract stood 64 cents higher at $69.17 bbl, while the October Brent contract was up 59 cents at $76.54 bbl ahead of its expiration Friday. November Brent traded 60 cents bbl higher at $76.89, a 35 cents bbl premium to October, with the market flipping into backwardation once the October contract rolls off the board.

The strength in the Brent contract reflects expectations for lower oil supply from Iran, as well as declining output by Venezuela, both members of the Organization of the Petroleum Exporting Countries. Brent’s premium to WTI has widened to more than $7 bbl in late August—the widest the spread has been since late June.

NYMEX September RBOB futures were up 0.75 cents to $2.0862 ahead of Friday’s expiration, while the October contract rose 0.84 cents to $1.9835 gallon. NYMEX September ULSD futures were up 1.66 cents to $2.2280 ahead of its Friday expiration, while October traded 1.61 cents higher at $2.2231 gallon.

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