Oil Futures Rally to Multi-Week Highs

OLD BRIDGE, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and front month Brent crude on the Intercontinental Exchange rallied to fresh multi-week highs Wednesday after midmorning supply data from the Energy Information Administration revealed across the board declines in U.S. oil stocks and strong demand for the week-ended Aug. 24.

EIA said commercial crude stocks declined a larger-than-expected 2.6 million bbl to 405.8 million bbl during the week profiled, gasoline inventory was drawn down 1.6 million bbl against an expected build, and distillate stocks fell 837,000 bpd with the market consensus calling for an increase.

The stock draws coincided with a jump in U.S. product supplied to market, with EIA reporting implied gasoline demand surged 446,000 bpd to 9.899 million bpd during the week profiled, the highest weekly demand rate on record. Implied demand for distillate fuel surged 372,000 bpd to a 4.437 million bpd four-month high. Implied demand for total U.S. oil products surged 595,000 bpd to a 14-month high at 22.137 million bpd. In 2018 through Aug. 24, total demand for U.S. oil products are up 505,000 bpd or 2.5% against year prior at 20.650 million bpd.

"We saw very bullish EIA data which caused prices to close just above the Bollinger band at $69.55 bbl, indicating that (WTI) could be over $70 bbl by Friday," said Dan Flynn, senior analyst with Chicago-based Price Futures Group. "We had a good GDP number come out and consumer confident is near an all-time high, which could lead to a lot of people driving over the Labor Day weekend."

The Bureau of Economic Analysis this morning revised higher by 0.1% second quarter U.S. gross domestic product annualized growth to 4.2%. NYMEX October West Texas Intermediate crude rallied to a $69.75 three-week spot high before settling up $0.98 at $69.51 bbl. ICE October Brent surged to a $77.41 seven-week high on the spot continuous chart ahead of the contract's expiration Friday afternoon, ending $1.19 higher at $77.14 bbl, with the November contract settling at $77.46 bbl.

Brent's premium to WTI widened to a $7.99 bbl 10-week high. Brent's premium to the U.S. crude benchmark has widened sharply in late August as signs emerge U.S. sanctions on Iran are having a greater-than-expected effect on its economy and oil exports. The trend is expected to continue in the near-term as a second round of U.S. sanctions targets Iranian oil exports. Boston-based consults with ESAI Energy projected Iranian oil exports will drop 1.1 million bpd because of the sanctions, with recent reports indicating Iran's oil exports were down 700,000 bpd during the first half of August from July. Iran's oil exports averaged 2.3 million bpd in June.

NYMEX September ULSD futures settled up 3.07 cents at $2.2421 gallon, edging off a $2.2486 gallon three-month high on the spot continuous chart, and ahead of the contract's expiration Friday afternoon. The October ULSD contract settled 3.18 cents higher at $2.2488 gallon.

NYMEX September RBOB futures settled up 2.73 cents at $2.1060 gallon, paring an advance to a four-week spot high of $2.1148 gallon, while ending at a 10.62 cents premium to October ULSD futures. The September contract expires Friday afternoon.

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