Oil Mixed in Morning Trade

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange moved mixed in midmorning trade, with West Texas Intermediate and Brent fading from four-month highs after facing resistance, as the market now awaits new weekly supply data due for release Tuesday afternoon and Wednesday morning.

The mixed early session also comes in front of the April WTI contract's expiration Wednesday afternoon, while a drop in the U.S. dollar to a three-week low also lends upside support for domestic crude futures. The dollar's weakness comes as the Federal Open Market Committee begins a two-day policy meeting, with the central bank set to provide its latest projections for the economy.

Nymex April WTI futures moved off a $59.57 four-month high on the spot continuous chart, trading little changed at $59.05 barrel (bbl), with the May contract holding a roughly $0.30 bbl premium to the expiring contract. ICE May Brent futures were flat near $67.45 bbl, fading from a fresh four-month spot high at $68.20 bbl. Nymex April RBOB futures held below Monday's better-than five-month spot high of $1.8969 gallon, trading at a $1.8964 intraday high before reversing down 0.9 cents near $1.8730 gallon. Nymex April ULSD futures were up 0.6 cents at $1.9750 gallon.

Oil futures are again finding support from production cuts by the Organization of the Petroleum Exporting Countries and ten non-OPEC producers that, along with sanctions on Venezuela and Iran, are tightening the global oil market. Those actions are colliding with suggestions the Energy Information Administration has likely overstated U.S. production gains, with EIA last week revising down its projections for domestic production for this year by 130,000 barrels per day (bpd) to 12.3 million bpd.

On Monday, the Joint Ministerial Monitoring Committee overseeing the OPEC agreement said OPEC achieved 90% compliance with 1.2 million bpd in production cuts in February compared with 83% in January, with the compliance rate seen further improving as Russia is expected to reduce output closer to their 230,000 bpd pledge in April.

Russian Energy Minister Alexander Novak said cold weather has delayed Russia from reaching its commitment under the accord.

OPEC will next meet June 25-26 to discuss the possible extension of the six-month agreement beyond June 30 after agreeing to skip an April meeting with Saudi Arabian Energy Minister Khalid al-Falih indicating commercial oil inventory held by the 35-country bloc Organization for Economic Cooperation and Development remains too high.

Russia wants a clearer picture on how U.S. sanctions on Iran and Venezuela will shape the global market before agreeing to an extension of the output agreement into the second half of 2019. Venezuela's crude production continues a better than six-year decline, with U.S. sanctions on Venezuela's state-owned oil company announced in late January hastening the fall in output which is seen sliding below 1.0 million bpd in the coming weeks after averaging 1.354 million bpd in 2018 and 1.911 million bpd in 2017.

Recent widespread power outages have exacerbated the problem. Waivers granted to eight countries by the United States allowing for the continued imports of Iranian oil are set to expire in May. Reports indicate the White House wants to further limit Iranian oil sales but has a balancing act to perform because of sanctions on Venezuela.

Iran's crude production was 2.743 million bpd in February after averaging 3.553 million bpd in 2018, data from OPEC shows. Lower U.S. crude imports from Venezuela and Saudi Arabia and the end of seasonal refinery maintenance in the United States in April and May are seen prompting big draws from domestic commercial crude stocks in the second quarter underpinning strength in WTI futures, as are strong U.S. crude exports. U.S. crude exports have averaged 2.656 million bpd in 2019 through March 8, but are seen expanding in the weeks ahead.

The Brent-WTI spread has narrowed to a six-week low near $8.50 bbl despite OPEC production slumping to a four-year low in February amid the dynamics in the U.S. oil patch.

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

(CZ)

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