Oil End Shallowly Mixed Thursday

CRANBURY, N.J. (DTN) -- Oil futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled shallowly mixed Thursday, consolidating within Wednesday's trade range. However, West Texas Intermediate settled up for a fourth straight session and at a fresh better-than three-year high.

NYMEX oil products futures settled lower, with the Brent contract flat, down 4cts at $72.02 bbl, although having rallied nearly $5.00 or 7.3% so far this week amid a growing geopolitical risk premium on developments in the Middle East.

"Geopolitical events could keep prices elevated above $70 Brent in April and May, but our balances suggest a high likelihood of a downward correction in 2H18," said Barclays Research in a research note today. "Over the near term, however, prices continue to benefit from a perfect storm of stagnant supply, geopolitical risk, and a harsh winter."

ICE Brent and NYMEX WTI futures settled at three-year, four-month highs on their spot continuous charts on Wednesday on expectations the United States was ready to launch a missile strike in Syria in response to a chemical attack near Damascus against a rebel enclave that killed women and children. Those expectations were based on a tweet from U.S. President Donald Trump Wednesday morning warning Syrian ally Russia that they, meaning missiles, will be coming. The president walked back those comments Thursday morning, indicating a missile strike might be coming very soon or not at all, sparking profit taking in oil futures.

Also on Wednesday, Saudi Arabia said it intercepted a ballistic missile over its capital, Riyadh, while two other missiles and drones were also shot down in the southern part of the country. The Saudis are leading a coalition in Yemen to oust Houthi rebels, which have support from Iran, although Tehran denies involvement in the conflict.

These developments come after excess oil supply held by the 35-country bloc that makes up the Organization for Economic Cooperation and Development has been sharply reduced. In their most recent Monthly Oil Market Report released this morning, the Organization of the Petroleum Exporting Countries said preliminary data for February shows an OECD surplus in commercial oil inventory 43 million bbl above the five-year average, down 213 million bbl or 80% against year prior. That surplus is all crude, with oil products 12 million bbl below the five-year average.

The decline in the surplus that pressured oil prices for three years beginning in mid-2014 has been reduced by strong growth in demand, due partly to historically low retail prices that incentivized consumer consumption, and well executed production cuts by OPEC and 10 non-OPEC oil producers including Russia.

Combined, the oil producers agreed to cut 1.8 million bpd in crude production from October 2016 levels which took effect as the start of 2017 and, through subsequent agreements, was extended through the end of this year. Compliance with the agreements has been uncharacteristically strong.

Thursday, OPEC in its monthly report said crude oil production by its members dropped 201,000 bpd to a 31.958 million bpd 11-month low in March.

The cartel also noted stronger-than-expected first quarter demand led by "industrial activities, colder-than-anticipated weather and strong mining activities in the OECD Americas and the OECD Asia Pacific." And in non-OECD Other Asia, first quarter demand topped expectations driven by the industrial and transportation sectors.

NYMEX May WTI futures settled Thursday's session up 25cts at $67.07, and has gained $5.01 or 8.1% since prior Friday.

NYMEX May RBOB futures slipped 1.3cts from a 7-1/2 month settlement spot high to $2.0546 gallon, although up 10.0cts or 5.1% this week. NYMEX May ULSD futures edged down 0.89cts to settle at $2.0838 gallon after settling at a better-than two month spot high of $2.0927 gallon Wednesday, while up 12.6cts or 6.4% from prior Friday.

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

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