Oil Futures Settle Higher
NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures rallied to higher settlements Wednesday afternoon, supported by the apparent success of production cuts by leading oil producing nations so far, and fresh concern over geopolitical tensions.
The market brushed aside bearish data that showed steep builds in domestic petroleum supplies and focused on tightening global oil supply, and rallied late session after the White House sent a strong warning to Iran against violating a ballistic missiles test ban.
National Security Adviser Michael Flynn said President Donald Trump was officially putting Iran on notice after Tehran test-fired a ballistic missile over the weekend.
Flynn noted Iran's missile launch on Sunday was in defiance of a United Nations Security Council resolution that called on Tehran not to undertake any activity related to ballistic missiles capable of delivering nuclear weapons.
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"Increased tension with Iran is adding a geopolitical risk premium to the price of oil while at a time we are seeing global supply tightening due to OPEC output cuts," said analyst Phil Flynn at Price Futures. "The market is realizing that the OPEC cuts are real."
The market was primarily focused on growing evidence showing strong compliance with oil production cut agreements by the Organization of the Petroleum Exporting Countries and its 11 non-OPEC partners. Several reports have shown that OPEC and non-OPEC have cut their output by 82% to 88% while non-OPEC compliance rate remains unknown.
Non-OPEC producing nations agreed on Dec. 10 to cut output by 558,000 bpd while OPEC agreed on Nov. 30 to slash its output by 1.2 million barrels per day (bpd) during the first half of 2017, with total planned cuts at 1.758 million bpd.
Wednesday, a survey by Reuters showed Russia has cut its output by 100,000 bpd, or a third of the 300,000 bpd in supply it had promised to cut, but Moscow said it plans to scale up its cuts gradually until it meets the target.
NYMEX March West Texas Intermediate futures settled up $1.07 to $53.88 per barrel (bbl), near a $53.91 three-day high on the spot continuation chart. ICE April Brent crude futures rallied $1.22 to $56.80 bbl, near a two-week spot high of $56.83.
NYMEX March ULSD futures spiked 4.32 cents to $1.6740 gallon, near a two-week spot high of $1.6750. March RBOB futures gained 2.90 cents to $1.5791 gallon, off a one-week spot high of $1.5858.
The Energy Information Administration reported across the board builds in domestic petroleum inventories for the week-ended Jan. 27, including a 6.5 million bbl spike in crude inventory. The bearishness of the large build was softened by a 1.2 million bbl draw in crude supply at the Cushing terminal in Oklahoma, the delivery point for NYMEX WTI crude futures, and a 46,000 bpd decline in domestic crude production to 8.915 million bpd.
The EIA report showed gasoline and distillate stockpiles unexpectedly rose by 3.9 million bbl and 1.6 million bbl, respectively. The report also showed implied demand for gasoline up last week by 271,000 bpd and distillate fuel consumption up 164,000 bpd, while refinery crude inputs eased by 100,000 bpd.
George Orwel can be reached at george.orwel@dtn.com
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