Profit-Taking Cuts Oil Futures Gains

WASHINGTON (DTN) -- Fading from session highs, New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange gave back a chunk of their morning gains Thursday afternoon, with West Texas Intermediate sliding from a seven-week high spurred by government data showing larger than expected weekly draws from U.S. commercial crude and product inventories, bringing crude stockpiles in line with the five-year average.

Oil futures posted strong gains after government data late morning reported a 4.7 million barrel (bbl) decline in crude stocks, which was especially bullish against the American Petroleum Institute's report late Wednesday estimating a 400,000 bbl build. Agency also said domestic crude production eased 100,000 barrels per day (bpd) last week from a record high 12.5 million bpd set a week prior, while exports remained robust above 3 million bpd for the second straight week, correlating with expanding pipeline infrastructure.

EIA data was also bullish for refined products, detailing much larger-than-expected draws in both gasoline and distillate stocks during the final week of August. According to the report, gasoline stocks tumbled 2.4 million bbl versus expectations of a 1.9 million bbl draw, while distillate fuel stocks dropped by 2.5 million bbl to about 6% below the five-year average for this time of the year.

Economic data released this morning also spurred buying interest, with private payroll provider ADP reporting a strong employment report and the Institute of Supply Management reporting a solid reading for the U.S. service sector in August, with both data sets suggesting the U.S. economy remains robust despite uncertainty over global trade tensions.

ADP reported job growth of 195,000 in August, beating estimates for job growth of 158,000, and coming in front of Friday's nonfarm employment report from the Labor Department. ISM reported its non-manufacturing index at the best reading since May at 56.4, topping market's expectations for the index to show 54.0.

A better-than-expected expansion in the service sector contrasts sharply with ISM's manufacturing index released earlier this week that unexpectedly fell into contraction at 49.1 in August. Some analysts believe the separation between the two indexes underlines the state of the domestic economy -- strength in consumer demand domestically and trouble for export-dependent economies.

Markets also advanced alongside a rally in equities on morning news of progress in the U.S.-China trade relationship, indicating that both sides agreed to meet at the beginning of October for a new round of trade talks. The negotiations will be the first face-to-face meeting since trade talks broke down in mid-May, rattling global financial markets.

NYMEX October WTI futures settled up $0.04 at $56.30 bbl after trading at a $57.76 seven-week high on the spot continuous chart. ICE November Brent contract managed a $0.25 gain to a $60.95 bbl settlement after trading at a $62.40 one-month spot high. NYMEX October ULSD futures finished the session 0.83 cents higher at $1.8885 gallon, frittering away an advance to a $1.9206 gallon one-month high on the sot continuation chart. The October RBOB contract gained 1.31 cents to a $1.5460 gallon settlement, having traded earlier in the session at a $1.5776 intraday high.

The U.S. dollar weakened slightly with a 98.382 settlement, with the index paring a decline to a 98.035 one-week low. The U.S. dollar index had rallied to a better than two-year high earlier this week.

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

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