Oil Futures Jump as Trade War Fears Ebb

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied in opening the first full week of trade for March, erasing last week's late week weakness on a plethora of factors, including a sharp advance in major equity indices.

The Dow Jones Industrial Average was up more than 350 points and the was S&P 500 Index nearly 35 points higher late afternoon, as concern planned import duties on steel and aluminum by the Trump administration would spark a global trade war faded.

President Donald Trump on March 1 said he would impose a 25% tariff on steel imports and a 10% tariff on aluminum imports that had triggered a massive selloff. Trump administration officials fanned out this weekend to say fears of a global trade war sparked by the tariffs were overblown, and noted the small size of the steel and aluminum sectors in the U.S. economy.

West Texas Intermediate futures also got a boost following an industry report that indicated crude stocks at the Cushing storage depot were again drawn down last week, which would mark the 11th consecutive weekly supply decline at the important tank farm in Oklahoma, should the Energy Information Administration corroborate the findings of the private forecaster Wednesday morning.

Crude stocks at Cushing have been drawn down every week since mid-December 2017, down 24.2 million barrels (bbl) to 28.8 million bbl over the period, the lowest amount of inventory held at the storage depot since late 2014.

Cushing is the underlying delivery location for the NYMEX WTI futures contract. With WTI futures in backwardation, a market structure in which a futures contract closest to delivery trades at a premium to deferred delivery, there is no incentive to store oil at the supply hub.

The Cushing depot also has a new customer following the late 2017 completion of the 200,000-barrel-per-day (bpd) Diamond Pipeline, which connects Cushing with Valero's Memphis refinery.

Also bolstering oil futures and equities was a strong reading for the services sector released Monday morning. The PMI services index in February jumped a greater-than-expected 2.6 points from January to 55.9, spurred by new orders. The ISM non-manufacturing index also gained more-than-expected last month at 59.5, although down 0.4 point from January, with services accounting for the vast majority of the U.S. economy. Readings above 50 indicate expansion.

NYMEX April WTI futures settled up $1.32 at $62.57 bbl, up for a second straight session after holding key support at $60 bbl late last week. ICE May Brent crude futures settled up $1.17 at $65.54, closing a gap on its spot continuous chart carved out following the expiration of the April contract on Feb. 28.

NYMEX April RBOB futures rallied 3.35 cents to settle at $1.9349 gallon, matching the Jan. 29 settlement, with the previous high settlement reached on Jan. 26 at $1.9377 gallon. RBOB futures moves into backwardation with May delivery.

NYMEX April ULSD futures settled up 1.71 cents at $1.8967 gallon.

The EIA will provide its latest near-term forecast for oil market fundamentals near noon Eastern Time on Tuesday with the release of its Short-term Energy Outlook. On Wednesday afternoon, the Federal Reserve will release the Beige Book of regional economic indicators, and Friday morning, the Labor Department will issue its nonfarm employment report. Market consensus estimates strong job gains continued in February, with 205,000 new jobs expected for last month that compares with a 200,000 person increase in U.S. employment in January.

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

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Brian Milne