Oil Ends the Day Higher

NEW YORK (DTN) -- Nearby delivered New York Mercantile Exchange oil futures contracts settled higher Monday with West Texas Intermediate crude posting the longest winning streak this year amid tensions in the oil-rich Middle East, a fresh loss of Libyan oil supply and expectations for weekly petroleum stock draws in the United States.

"The primary story is that Libya lost 200,000 bpd of production, which is supporting the market, but don't underestimate geopolitical risks that have returned and expectations for crude and product stock draws," said Tom Bentz, vice president for energy derivatives at ABN AMRO.

Libya's largest oilfield, Sharara, was shut on Sunday, after a pipeline that ships crude from there to Zawiya export terminal was idled. As a result, state-owned oil company that runs the oilfield declared a force majeure following the outage. It's the second disruption to the field's production since April 2, reducing the country's supply to an estimated 500,000 bpd.

Libya was hoping to continue increasing its output to 1.0 million bpd by August, which would still be below the 1.6 million bpd Libya produced before political turmoil and civil war that started in 2011.

The Libyan outage highlighted risks to global supply and turned market attention to the Organization of the Petroleum Exporting Countries' output and geopolitical risks, especially in the Middle East.

Russia and the United States have engaged in sharp exchanges over Syria since Thursday (4/6) when 59 U.S. cruise missiles from a naval ship in Mediterranean Sea struck a Syrian airbase. President Donald trump acted quickly in retaliation for Syrian President Bashar al-Assad's use of chemical weapons against civilian two days prior in violation of the Geneva Convention.

Although Syria is not a major oil producer, the situation involves major oil producers like Russia and Iran, both backers of the Syrian dictator Assad. Syria also is a neighbor of Iraq and top oil exporter Saudi Arabia which supports the U.S. against Syria.

In addition, Russian oil minister Alexander Novak said the Kremlin would consider suggestions by some OPEC members to extend the output cuts of nearly 1.8 million bpd agreed to las year for another six months during meetings set for May.

The current quota scheme was implemented on Jan. 1 and runs through June 30. Non-OPEC Russia agreed to cut 300,000 bpd, with 10 other non-OPEC producers agreeing to cut 228,000 bpd of their output. OPEC is responsible for cutting 1.2 million bpd.

The output cuts supported oil futures in January and February before speculators trimmed length in March, pressing down the oil complex. However, expectations that demand would be improve during the summer months and draw down global and U.S. oil supply pushed oil futures back into the trading ranges seen earlier this year. Analysts have called the market action a V-shape price recovery.

The Commodity Futures Trading Commission's Commitment of Traders report for the week-ended April 4 showed investors buying NYMEX WTI crude, ULSD, and RBOB futures, advancing bullish sentiment.

The market is now looking ahead to U.S. data on fundamentals.

An early survey today showed the market expects U.S. stock draws of more than 2.0 million bbl for crude, gasoline and distillates to have occurred during the week-ended April 7, with the American Petroleum Institute set to issue its report late Tuesday while the Energy Information Administration's report is due on Wednesday.

The market also awaits monthly oil reports from EIA on Tuesday (4/11), OPEC on Wednesday (4/12) and the Paris-based International Energy Agency on Thursday (4/13).

May NYMEX WTI futures settled 84cts higher at $53.08 bbl, near a $53.14 fresh one-month high on the spot continuation chart after punching through resistance at $52.52. Next resistance is found at $55.56.

IntercontinentalExchange June Brent futures climbed 74cts to settle at $55.98 bbl after inside trade.

NYMEX May ULSD futures settled up 1.89cts at $1.6473 gallon, off a $1.6488 five-week high on the spot continuation chart, and NYMEX May RBOB futures gained 1.19cts to $1.7581 gallon.

George Orwel can be reached at george.orwel@dtn.com