Products Push Oil Futures Higher

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent on the Intercontinental Exchange settled the midweek session higher following two down days. Oil products led an upside reversal on a bullish supply report from the Energy Information Administration showing strong domestic demand while exports also rose.

NYMEX March RBOB futures settled 3.32cts higher at $1.4591 gallon, an eight-week high on the spot continuous chart. March ULSD futures settled 1.47cts higher at $1.9122 gallon.

NYMEX March WTI futures reversed off a $52.86 bbl one-week low to settle $0.35 higher at $54.01 bbl, while ICE April Brent gained $0.71 with a $62.69 bbl settlement. Brent's premium to WTI widened to a better than two-week high at $8.68 bbl.

An ongoing rally in the U.S. dollar capped gains for West Texas Intermediate, as did a third straight build in U.S. commercial crude stocks, albeit the weekly increase was below expectations.

Despite slowing growth, macroeconomic data continues to suggest the U.S. economy remains strong in contrast with slowdowns in China and Europe, and early-year forecasts that the domestic economy would struggle amid global headwinds.

"Intermodal volumes, chemicals and petroleum and petroleum products all continued their [upside] momentum from 2018," said John T. Gray, senior vice president of policy and economics with the Association of American Railroads. "On the other hand, motor vehicles and parts were down in January -- and overall carloads were held back by declines in coal and grain, but these fluctuations don't reflect weakness in the economy."

Historically, railroad activity has been a bellwether for the U.S. economy.

The EIA reported total oil products implied demand surged 1.023 million bpd to 21.838 million bpd during the week ended Feb. 1, up 995,000 bpd against a year ago, while so far in 2019 is running 1.301 million bpd or 1.4% ahead of the 2018 pace at 21.101 million bpd.

In their survey of production activity by the Organization of the Petroleum Exporting Countries, S&P Global Platts said crude output by the cartel declined to the lowest point since March 2015 at 30.86 million bpd, down 970,000 bpd from December. The lower output follows December's six-month production agreement reached by OPEC, Russia and nine other non-OPEC oil producers that runs through the end of June, and more than the 812,000 bpd reduction OPEC agreed to in Vienna.

The survey indicated crude production from Saudi Arabia fell 390,000 bpd from December to an eight-month low at 10.21 million bpd, with Iran's output down 80,000 bpd to 2.72 million bpd. Venezuelan crude production eased 10,000 bpd to 1.16 million bpd, with both Iran and Venezuela exempt from the supply pact.

U.S. crude production remained at an 11.9 million bpd high for the week ended Feb. 1, EIA reported, while commercial crude stocks increased 1.3 million bbl to a 447.2 million bbl 10-week high. Crude supply is expected to continue to increase in the first quarter amid refinery maintenance, which underpins strength for oil products.

U.S. exports of crude, gasoline and distillate fuel all increased, with total U.S. crude and products exports up 1.024 million bpd to 8.022 million bpd during the week profiled.

EIA reported a 500,000 bbl build to 257.9 million bbl in gasoline supply for the week profiled, with distillate stocks down for the third straight week, declining 2.3 million bbl to 139.0 million bbl last week. Gasoline stocks narrowed their surplus with a year ago by 3.2 million bbl during the past two weeks through Feb. 1 to 12.4 million bbl or 5.1%. Distillates stocks flipped a year-on-year surplus of 3.4 million bbl or 3.4% in prior week to 2.8 million bbl or 2.0% decline as of Feb. 1.

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

(CZ)

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