Oil Advances in Choppy Trade

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent crude on the Intercontinental Exchange edged higher Tuesday amid broader market volatility, with oil futures paring gains on shifting equity and currency markets, and ahead of weekly supply data from the American Petroleum Institute. Tuesday's advance also follows the latest monthly outlook from the Energy Information Administration, with the federal agency revising 2019 world oil production down and global oil demand higher.

Nymex January West Texas Intermediate futures settled up $0.65 at $51.65 barrels (bbl), with ICE February Brent $0.23 higher at a $60.20 bbl settlement. Nymex January ULSD futures eked out a 0.3 cents gain to a $1.8471 gallon settlement, with the January RBOB contract climbing 2.09 cents to settle at $1.4398 gallon.

Near noon in Washington, the EIA released its Short-term Energy Outlook that revised world oil production up 330,000 bpd to 100.42 million barrels per day (bpd) for this year but down 300,000 bpd for 2019 to 101.84 million bpd. EIA also revised global oil demand expectations for 2019 up 100,000 bpd from its outlook in November to 101.61 million bpd, pointing to a mostly balanced market.

The revisions follow an agreement reached by the Organization of the Petroleum Exporting Countries, Russia and nine other non-OPEC oil producers on Friday (12/7) to cut their oil production 1.2 million bpd during the first half of 2019. Lower oil prices compared with late third quarter are also seen slowing the pace in new drilling activity.

Separately, about 400,000 bpd of Libyan crude ready for export is instead flowing into storage tanks and two oil fields are shut-in as militants are again active in the North African nation. Libya is exempt from the OPEC production agreement.

Weekly supply statistics are due out by the API later Tuesday afternoon and the EIA 10:30 AM ET Wednesday, with the markets expecting a second straight drawdown in U.S. commercial crude inventory occurred during the first week of December and for oil products to register builds. Crude stocks are expected to have been drawn down 3.0 million bbl during the week profiled, with the EIA last week reporting a 7.3 million bbl decline during the final week of November. Gasoline stocks are seen to have increased by about 3.0 million bbl following a 1.7 million bbl increase reported prior week by EIA, with distillate stocks expected to have added 1.8 million bbl for the week profiled after a 3.8 million bbl build during the previous week.

The crude contracts reached their highs in midmorning trade, lent support from higher equities following news that China was reconsidering current tariffs on U.S. automobile imports, one of U.S. President Donald Trump's demands. The news suggested the 90-day truce in the U.S.-China trade dispute through March 1 is providing an opening for the world's two largest economies to negotiate an agreement.

The support provided to equities eroded later in the session on news from U.S. officials that the Trump administration is ready to take action against China for ongoing efforts to steal trade secrets and advanced technology, and attempts to hack government and corporate computers, according to the Washington Post. U.S. actions are said to include sanctions and indictments. The latest news follows last week's arrest of a Chinese executive with Huawei for allegedly violating U.S. sanctions against Iran, with the technology firm under suspicion for spying for Beijing.

A breakdown in trade negotiations between the United States and China risks slowing global trade and world economic growth.

Also paring down oil futures was a stronger U.S. dollar, which rallied to a one-month high Tuesday afternoon in index trading. The U.S. dollar and WTI futures have an inverse relationship since oil trade is mainly conducted in U.S. dollar denominations.

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

(BAS)

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