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 
week. 

   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, liubov.georges@dtn.com, www.dtn.com. (c) 
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