Oil Futures End Higher Thursday

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and Intercontinental Exchange Brent futures settled fractionally higher Thursday afternoon with the gasoline contract rallying, supported by steep declines in U.S. commercial crude oil inventories, while a strong U.S. dollar and concern over faltering demand capped the gains.

After trading in narrow ranges for most of the session, NYMEX September West Texas Intermediate futures settled $0.14 higher at $56.02 per barrel (bbl) and ICE September Brent futures ended $0.21 up with a $63.39 bbl settlement. NYMEX August RBOB rallied 2.52 cents to $1.8803 gallon, while the August ULSD contract edged 0.56 cent higher to $1.9143 gallon.

Oil futures were boosted earlier in the session after European Central Bank indicated another rate cut is coming in September to shore up the region's struggling economy. Eurozone interest rates have been held near zero for years to stimulate economic growth, but the latest downturn in the EU manufacturing sector might prompt the central bank to press the rate into negative territory. ECB President Mario Draghi said this morning, "The outlook for EU economy is getting worse and worse," while pointing to uncertainty caused by trade tensions and the possibility of a hard Brexit.

Following the nomination of Boris Johnson as Britain's Prime Minister this week, odds of a hard or no-deal Brexit were sharply elevated, which means Britain would give up participation in the EU single market and its legal rules. The deadline for Brexit is currently set for Oct. 31.

Economists have long pointed to an inverse relation between lower interest rates and a higher price of oil. Market participants are more likely to take on a bullish position when borrowing costs are cheap and the dollar is weak, which in turn boosts oil prices because commodities are denominated in dollars. In the United States, the Federal Reserve is widely expected to lower interest rates by at least 25 basis points at its next rate-setting meeting on July 30-31.

U.S. stock market indexes were posting losses Thursday, with the Dow Jones Industrial Average falling more than 200 points at one point and the S&P 500 Index down 0.54% as of 3:30 p.m. EDT. Both indexes came under pressure after ECB comments raised recession fears, and a mixed bag of corporate earnings failed to lend support for the market.

U.S. dollar rallied Thursday afternoon to reach 97.545 in intraday trading, a fresh six-week high.

Oil futures drew support from a relook at a bullish 10.8-million-barrel draw from U.S. commercial crude inventories last week, reported Wednesday by the U.S. Energy Information Administration. Government data said U.S. crude stocks declined for the sixth consecutive week, pressing inventories to the lowest level since March 26. Federal statistics also showed a massive 700,000-barrel-per-day decline in domestic crude production last week, which pressed output to the lowest rate in nearly nine months. Market analyst attribute much of the decline to production shut-ins in the Gulf of Mexico following Hurricane Barry.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)