Oil Advances in Early Trade

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Intercontinental Exchange Brent crude resumed their advance in early trading Thursday, with the Brent contract moving through $75 per barrel (bbl) to a fresh nearly six-month high on concern over a tightening global oil market, while the gasoline contract rallied to a nearly eight-month high on declining inventory and strong demand in the United States.

At 9 a.m. ET, ICE June Brent futures were up $0.35 at $74.92 bbl, edging off a $75.60 high, while Nymex June West Texas Intermediate was flat at $65.89 bbl. Nymex May RBOB futures gained 1.8 cents to $2.1465 gallon after trading at a $2.1548 high, and May ULSD futures were up 0.72 cents at $2.1059 gallon.

The early-week announcement that the United States would not extend waivers allowing certain countries the freedom to purchase Iranian crude oil without the threat of U.S. sanctions has rallied oil futures despite a forecast that global oil supply is adequate to offset the lost Iranian oil barrels. Current waivers will expire on May 2.

Iran's oil exports are estimated at about 1.1 to 1.3 million barrels per day (bpd).

The International Energy Agency on Tuesday said markets are adequately supplied and spare capacity has increased to a "comfortable" 3.3 million bpd. The U.S. State Department in announcing their goal to drive Iranian oil exports to zero also said the market has enough oil to meet demand, with Saudi Arabia and the United Arab Emirates agreeing to cover any shortfalls caused by lost Iranian oil sales. IEA indicates Saudi Arabia holds 2.2 million bpd of global spare capacity.

On Wednesday, Saudi Arabia's Energy Minister Khalid A. al-Falih said despite declining production in Venezuela, where output has dropped below one million bpd and to the lowest level since massive strikes idled production in January 2003, global inventories continue to build. Saudi production would continue to be guided by the production agreement between the Organization of the Petroleum Exporting Countries, Russia and nine other non-OPEC oil producers, with no change in output in May, said the energy minister. A decision on June production would be made in early May.

The market is questioning the willingness of the Saudis to quickly lift production after ramping up output ahead of the early November start to U.S. sanctions on Iran oil exports only to later learn of the waivers, creating a global supply glut and a steep selloff in oil prices in the fourth quarter.

West Texas Intermediate futures are holding below this week's nearly six-month high following a large 5.5 million bbl build in commercial crude stocks for the week ended April 19 in the United States reported Wednesday by the Energy Information Administration, lifting supply to a more than 18-month high at 460.6 million bbl.

A rallying U.S. dollar, reaching a 98.030 nearly two-year high in early index trading, is also limiting the upside for the U.S. crude grade.

Nymex RBOB futures have surged to a new high following EIA data Wednesday showing gasoline stocks dropped for a 10th consecutive week to a 225.8 million bbl five-month low, holding below the five-year average for a third straight week. Days of forward gasoline supply dropped from 29.8 in mid-January, the most since March 1995, to 23.9 days, the lowest since late July.

Brian L. Milne can be reached at brian.milne@dtn.com

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