Oil Shifts Higher in Morning Trade

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange shifted higher in early trade Wednesday on reports China is willing to agree on a partial trade deal with the United States, while larger-than-expected declines in U.S. petroleum product stocks detailed in industry data Tuesday added to the buying interest.

Around 8:30 a.m. ET, NYMEX November West Texas Intermediate futures were up $0.66 near $53.29 per barrel (bbl), while ICE December Brent traded $0.71 higher at $58.95 bbl. NYMEX November ULSD futures rallied 2.21 cents to $1.9322 gallon and the November RBOB contract up 1.96 cents at $1.6005 gallon.

Oil complex seemed to follow equity futures higher early Wednesday after Bloomberg reported China is prepared to accept a partial trade deal with the United States as long as no more tariffs are imposed by President Donald Trump. According to the report, the agreement would not include major sticking points of government subsidies and intellectual property protection from the Chinese government.

Despite signs that the deal is still possible, markets remain on edge following the U.S. government decision to bar more than two dozen Chinese companies and entities from doing business in the United States. In a separate Bloomberg report, White House is prepared to move ahead with capital controls against China if the talks fail to produce a positive outcome.

Markets now await official figures from Energy Information Administration on last week's change in U.S. crude and petroleum stocks.

Industry data reported Tuesday showed much larger-than-expected declines in gasoline and distillate fuels inventories during the week ended Oct. 4, while a crude supply build surpassed market estimates. Data showed crude inventories increased 4.1 million barrels (bbl) in the first week of October, well above calls for 2.4 million bbl build. Gasoline stockpiles sank 5.9 million bbl, much more than calls for a draw of 1.2 million bbl. Distillate stocks decreased 4 million bbl in the week reviewed versus expectations for a 2.5 million bbl draw.

Oil complex also drew some support from downward revisions to global supply estimates in EIA's Short-term Energy Outlook released Tuesday. The agency said crude production from countries within Organization of the Petroleum Exporting Countries is set to post sizable declines in the current year, down 160,000 barrels per day (bpd) to just 35.22 million bpd, partly attributed to supply disruption in the block's largest producer, Saudi Arabia. In the United States, the agency sees production leveling off in 2020 due to falling crude oil prices in the first half of the year and continuing declines in well-level productivity.

Agency maintained its projections for world oil demand in the current year, while revised lower the forecast for 2020 consumption rate amid slowing global economy.

OPEC will release its market outlook on Thursday, followed by demand and supply estimates from the International Energy Agency on Friday.

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

(BAS)