Oil Futures Mixed on Building US Crude Stocks, Saudi Cuts
WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange nearest delivered oil
futures and Intercontinental Exchange Brent futures traded mixed Thursday
morning amid competing factors, including a fourth consecutive weekly build in
commercial crude stocks in the United States reported Wednesday by the Energy
Information Administration countered by declining output from Organization of
the Petroleum Exporting Countries led by a sharp drop in Saudi production.
In late morning trading, NYMEX March West Texas Intermediate futures were
down slightly at $53.80 bbl, with ICE Brent futures up 24cts $63.85 bbl. March
ULSD contract gained 0.74cts to $1.9462, while March RBOB futures gained
1.42cts to near $1.4793 gallon.
In overnight trading, oil futures were broadly supported by a 930,000 bpd
drop in OPEC crude production reported by the International Energy Agency
Wednesday morning. The steep decline in January production pressed total OPEC
output to near a four-year low at 30.83 million bpd that led to a 1.4 million
bpd decline in world oil supply during the first month of 2019.
The sharp drop in OPEC oil production was driven by Saudi Arabia, where
January output was down 350,000 bpd at 10.213 million bpd, as the kingdom cuts
output more than its obligation under the OPEC+ agreement. On Tuesday, Saudi
Energy minister Khalid al-Falih said during an interview that production would
fall below 10 million bpd in March to more than 500,000 bpd below the 10.311
million bpd target agreed to in Vienna.
The steep decline in Saudi Arabia's output coincides with U.S. sanctions on
Venezuelan state oil company PDVSA, which threaten to remove some 330,000 bpd
in supply from the market this year, according to Goldman Sachs. Some market
observers do not expect these volumes to ever come back into the global market,
as an implied 30% hurdle rate required to turn Venezuela's extra heavy crude
oil into oil exports would be too high to accept for the struggling nation. In
recent comments, Phillip Verleger, the principal at PKVerleger LLC said that
Venezuela's vast oil reserves would likely become one of the first stranded oil
assets of this century.
Supply cuts from Saudi Arabia and curtailed exports from Venezuela allowed
investors to look past a mostly bearish EIA report released Wednesday.
EIA reported a 3.6 million bbl build in commercial crude stocks in the
United States that lifted inventories to the highest level since November 2017
to 450.8 million bbl during the week-ended Feb. 8. It was the fourth
consecutive week with an increase, with domestic crude stocks up 13.755 million
bbl since mid-January.
The increase came despite a drop in net crude imports to the lowest volume
on record at 3.846 million bpd during the profiled week while domestic crude
production at 11.9 million bpd remained at peak levels for the fifth straight
U.S. crude output is expected to grow by 1.45 million bpd this year and by
another 790,000 bpd next year to 13.0 million bpd, according to the EIA. The
growth, led by U.S. shale oil output, has built up global inventories of crude
and refined products.
In outside markets, U.S. dollar marched upward Thursday morning to trade at
a 97.12 fresh two-month high, as the U.S. economy continued to outperform
economies in the Eurozone and Asia. Gross domestic product for Europe in the
fourth quarter was left unchanged at an annualized 1.2% growth rate with
Germany's fourth quarter GDP reported flat after 0.2% contraction in the third
quarter, dodging a recession bullet. Annualized fourth quarter GDP in Germany
was a lower-than-expected 0.6%. According to Germany's Federal Statistics
Office annualized fourth quarter GDP in Europe's largest economy was
lower-than-expected 0.6%, as industrial production has been falling at the
fastest pace since the financial crisis hit by the slowing demand for its goods
and a struggling car industry.
Liubov Georges, 1.646.359.4088, email@example.com, www.dtn.com. (c)
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