Oil Higher in Early Trade

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and the Intercontinental Exchange Brent futures contract were higher in early trading Wednesday ahead of the weekly statistical report from the Energy Information Administration and the Thanksgiving Day holiday on Thursday.

The short-covering advance follows steep losses Tuesday that pressed the crude grades to lows last traded in 2017, and after the American Petroleum Institute showed an unexpected draw in commercial crude stocks that would be the first decline since mid-September if corroborated by the EIA when they release their data at 10:30 a.m. ET.

API said late Tuesday commercial crude stocks were drawn down 1.545 million barrels (bbl) during the week-ended Nov. 16, with the EIA last reporting inventory at a 442.1 million bbl 11-month high on Nov. 9. The crude stock decline comes as refiners are winding down autumn maintenance programs, while API reported a 706,000 bbl build in gasoline stocks for the week profiled.

A 1.832 million bbl decline in distillate stocks reported by API for the week profiled was bullish, with EIA showing inventory at 119.3 million bbl on Nov. 9 that is 5.5 million bbl below year ago and 10.439 million bbl less than the five-year average.

Below normal distillate inventory comes as cold weather descends upon the U.S. Northeast, where the largest concentration of homes and small businesses using heating oil for their space heating needs are located. The National Oceanic and Atmospheric Administration's Climate Prediction Center shows below normal temperatures persisting in the Northeast through Dec. 14.

While advancing Wednesday morning, the market remains gripped by bearish sentiment that intensified this week on increasing concerns over slowing economic growth fanned in large part by the U.S.-China trade dispute and sharply higher world oil production through October. The United States, now the world's largest oil producer, continues to produce at record highs, last reported at 11.7 million barrels per day (bpd).

The sell-off this week comes despite an announcement earlier this month that Saudi Arabia would cut oil production 500,000 bpd in December, and urged members of the Organization of the Petroleum Exporting Countries and non-OPEC producers aligned with OPEC in a production agreement to consider a 1.4 million bpd output cut when they meet on Dec. 6. Russia, who dominates the non-OPEC contingent, diminished the effect of the news, saying OPEC should wait until their December meeting in Vienna before rushing to agree on production cuts.

Iran is expected to export about 900,000 bpd of crude oil for the next six months despite U.S. sanctions after the United States granted eight countries waivers from U.S. sanctions on Iranian oil exports that took effect on Nov. 5. The waivers caught the market by surprise after the Trump administration said it was pushing to zero out Iranian oil exports.

Concerns over slowing economic growth and its knock-on effect in oil demand was the primary instigator in Tuesday's rout. On Monday, Goldman Sachs said U.S. gross domestic product growth would slow in the second half of 2019, projecting annual growth in the third quarter of 1.8% and 1.6% in the fourth quarter.

One of the factors Goldman Sachs said would slow U.S. economic growth was the U.S.-China trade dispute, with recent data showing China's economy slowing as the world's second largest economy experiences challenges in transitioning to a consumer economy while Beijing's debt load is high.

U.S. President Donald Trump is scheduled to meet with China's President Xi Jinping on Nov. 30 to Dec. 1 at the G-20 meeting in Argentina when they are expected to discuss U.S. complaints over China's trade policies. The upcoming meeting follows the Asia Pacific Economic Cooperation meeting in New Guinea attended by U.S. Vice President Mike Pence in which attendees were unable to reach an agreement on trade issues.

In early trading, Nymex January West Texas Intermediate were up $1.00 near $54.45 bbl, and the ICE January Brent contract was $0.75 higher a near $63.25 bbl, with both contracts consolidating at the low end of Tuesday's trade range.

Nymex December ULSD futures were up 0.25 cents near $1.9930 gallon, and the December RBOB contract was 1.95 cents higher near $1.5150 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com

(CZ)

Copyright 2018 DTN/The Progressive Farmer. All rights reserved.