Oil Ends Thursday Mixed

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures closest to delivery and Brent crude on the Intercontinental Exchange settled Thursday's session shallowly mixed with an upside bias after trading on either side of Wednesday's settlements, consolidating within this week's trade range.

Oil futures have swung wildly this week, starting the second quarter with a selloff alongside steep losses by major equity indices on worry strong global economic growth would be hampered by a trade war between the United States and China following competing announcements of import tariffs. Slowing economic growth would dampen oil demand, with bullish oil demand growth expectations in the first quarter having underpinned price gains by oil futures.

Oil futures fell to two-week lows early Wednesday, seemingly set to break below key support marks. Comments from National Economic Council Director Larry Kudlow on Wednesday reversed the losses in equities and lent support for oil futures, after the newly appointed director said there was no trade war with China, and that China's announced tariffs on 234 U.S. products imported by the country might not take effect.

Kudlow explained that U.S. President Donald Trump wants to resolve trade dispute issues with China though negotiation, calming the market, with equities continuing Wednesday's late day rally through this afternoon.

The Dow Jones Industrial average was up nearly 250 points late afternoon following a more than 250-point advance Wednesday. The S&P 500 Index nearly 20 points through late afternoon Thursday.

After moving lower overnight, NYMEX oil futures reversed higher as the stock market in the United States opened with gains. By afternoon, even as major equity indices juiced their gains, oil futures trimmed their advance. A strong U.S. dollar, which rallied to a better-than two-week high, capped the upside for West Texas Intermediate.

At settlement, NYMEX May WTI futures were up 17cts at $63.54 bbl, with the June Brent contract on ICE ending the session 31cts higher at $68.33 bbl. Brent's premium widened to a $4.79 bbl four-day high, with the previous high of $5.33 bbl at the March 29 settlement a two-month high.

A widening WTI discount provides an incentive for U.S. crude exports, which reached a record high at 2.715 million bpd during the final week of the first quarter. It was only the third week since restrictions on U.S. crude exports were ended in December 2015 that U.S. crude exports topped 2.0 million bpd.

The Energy Information Administration on Wednesday reported an unexpected 4.6 million bbl draw in U.S. commercial crude inventory for the week-ended March 30, which lowered stocks to 425.3 million bbl. One year ago, commercial U.S. crude oil inventory reached an all-time high of 535.5 million bbl.

While the draw and year-on-year comparison are bullish, crude stocks at Cushing, Oklahoma, the delivery location for NYMEX WTI futures, increased for the fourth consecutive week, up 6.7 million bbl or 23.8% since March 3 when they fell to a better-than three-year low at 28.2 million bbl. Also limiting the upside for crude futures is ongoing increases in U.S. crude production, which increased for a sixth consecutive week through the week-ended March 30 to a fresh record high of 10.46 million bpd.

WTI's calendar spreads for the next 12 months have narrowed sharply this week, with the front end of the forward curve in position to flip from backwardation—a bullish market structure, to contango.

NYMEX May RBOB futures settled up 0.48cts at $1.9816 gallon, while May ULSD futures settled down a fractional eight points at $1.9765 gallon. After late first quarter demand strength for heating oil in the Northeast amid a string of winter weather in March that underpinned gains by ULSD futures, a drop in demand and a 500,000 bbl build in inventory last week reported Wednesday by the EIA that compared with expectations for a draw continues to pressure ULSD futures.

In contrast, RBOB futures lent support from expectations for already robust gasoline demand to accelerate as we move through spring and into the peak driving season following Memorial Day. During the first quarter, preliminary demand data from the EIA shows gasoline demand during the first quarter outpaced the comparable year-ago quarter by 295,000 bpd or 3.4% at 9.079 million bpd.

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

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Brian Milne