Oil Futures Surge to 1-Month Highs

WASHINGTON (DTN) -- New York Mercantile Exchange nearest delivery oil futures and Intercontinental Exchange Brent settled sharply higher Wednesday after government data showed across-the-board draws in U.S. crude and products supply during the week ended Oct. 18, with large declines in gasoline and distillate fuels inventories realized even as refinery run rates reversed higher following six consecutive weeks of decline.

Wednesday's higher session also came as the U.S. dollar index softened against a basket of foreign currencies to a 97.150 intraday low, paring the decline at settlement. A weaker greenback usually boosts the price of dollar-denominated crude, as it makes it less expensive for traders using other currencies.

Oil futures posted strong gains in market-on-close trade Wednesday after Energy Information Administration reported a surprise drawdown in U.S. crude supply last week, reversing the building pattern seen in the last two months.

Markets mostly priced in a stock build up in commercial crude stocks Wednesday following earlier estimates from the industry group American Petroleum Institute showing a 4.7 million barrel (bbl) increase on Tuesday. The stock decline was realized despite a third weekly drawdown from the Strategic Petroleum Reserve, down nearly 1 million bbl to 642.359 million bbl. In the three weeks of October, SPR inventories were drawdown nearly 3.5 million bbl, pressing reserves to the lowest level since early February 2004.

A larger-than-expected upswing in refinery activity of more than 2% of capacity, steep decline in crude imports and boost in exports all contributed equally to Wednesday's stock draw.

Adding to the bullishness, data also detailed large drawdowns in gasoline and distillate fuels supply, with declines realized even as U.S. refinery run rate reversed higher following six consecutive weeks of decline. Gasoline stocks fell a massive 3.1 million bbl against an API reported 702,000 bbl decline, pressing inventories to the lowest level since the first week of December 2017. Gasoline demand registered an unseasonal increase of 236,000 bpd in the week reviewed, with four-week average demand through Oct. 18 2.3% above than the corresponding four-week period last year.

Distillate stocks also decreased by 2.7 million bbl and are now about 12% below the five-year average, according to EIA. Markets expected supplies to have decreased by 3 million bbl from the previous week.

NYMEX December West Texas Intermediate futures advanced $1.49 to $55.97 bbl and the Intercontinental Exchange December Brent contract surged $1.47 to a $61.17 bbl settlement. Both contracts ended the session at the highest settlements in nearly four weeks. NYMEX November ULSD futures rallied 2.06 cents to $1.9643 gallon. A one-month spot high settlement, and the November RBOB contract spiked 4.3 cents to $1.6519 gallon -- the highest settlement on the spot continuous chart since Sept. 26.

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

(BAS)