Oil Higher in Thursday Trade

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

CRANBURY, N.J. (DTN) -- Oil futures traded on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange moved higher early Thursday following Wednesday's mixed close, climbing as the global oil supply-demand disposition moves towards.

In addition, oil production from Venezuela continues to decline amid the economic collapse of the South American country which is moving deeper into dictatorship, while tensions between rival militias in Libya have fueled renewed conflicts that reports indicate briefly cut 80,000 barrels per day (bpd) of oil production over the weekend. Potential sanctions on Iranian crude exports are also looming should U.S. President Donald Trump choose not to recertify the 2015 Iranian nuclear accord at the next deadline on May 12, as the president has threatened.

On Tuesday, French President Emmanuel Macron proposed a new framework for the Iranian accord that would address some of Trump's concerns, including addressing Iran's ballistic missile program and containment in Syria.

"Oil is up as the French President shared that idea and said his bet was that that President Donald Trump would drop out of the deal because of what he suggested were domestic reasons," said Chicago-based Phil Flynn, senior market analyst with the PRICE Futures Group.

Crude production by Iran, a member of the Organization of the Petroleum Exporting Countries(OPEC), has averaged 3.8 million bpd for several months, with sanctions potentially reducing Iranian oil exports by 350,000 bpd.

Libya and Venezuela are also members of OPEC, with Libyan crude production in March averaging at a 968,000 bpd three-month low, and Venezuelan crude production at 1.488 million bpd, which compares with a 2017 output rate of 1.923 million bpd and at 2.159 million bpd in 2016.

Oil futures have also been bolstered in April amid the Yemen conflict, where Saudi Arabia is leading a coalition south of its border to oust Houthi rebels, which have the support of Iran. Tehran denies involvement in the conflict, although the Houthi rebels have launched multiple ballistic missiles at Saudi Arabia that the Saudis have intercepted.

Earlier this week, news broke that the Houthis captured 19 Saudi oil tankers, with reports indicating the rebels are increasingly targeting Saudi oil facilities. Saudi Arabia is the de facto leader of OPEC, with crude oil production averaging 9.934 million bpd in March.

Oil futures advance early Thursday follows mostly bearish weekly supply data reported midmorning Wednesday by the Energy Information Administration (EIA) that detailed weekly supply builds in U.S. commercial crude and gasoline stocks and a drop in demand for oil products. EIA did report distillate fuel inventory was drawn down for the fourth consecutive week through April 20 to a 122.7 million bbl 40-month low, while down 28.2 million bbl or 18.7% on the year.

Despite Wednesday's mixed report, the oil market is tightening, with the forward curves for NYMEX West Texas Intermediate, ICE Brent and NYMEX ULSD contract in backwardation, with RBOB futures set to move into the bullish market structure following this coming Monday's May contract expiration.

NYMEX May ULSD futures and ICE June Brent futures are scheduled to expire at the close of Monday's trading, too.

At 9 a.m. ET, NYMEX May ULSD futures were up 2.16 cents at $2.1576 gallon, and has since traded at a fresh 38-month high on the spot continuous chart of $2.1659 gallon. The June contract was 2.05cts higher at $2.1440 gallon.

NYMEX May RBOB futures were 1.27 cents higher at $2.1024 gallon, with June RBOB futures up 1.3 cents at $2.1079 gallon.

NYMEX June WTI futures were up 48 cents at $68.53 bbl, with WTI's discount to Brent deepening to $6.21 bbl, the widest the spread has been in nearly four months.

ICE June Brent were up 74 cents at $74.74 bbl with the July contract 69cts higher at $73.92 bbl.

WTI's widening discount to Brent, spurred by record high U.S. crude production that are weighing on WTI futures while geopolitical tensions and production cuts by OPEC and 10 non-OPEC oil producing countries underpin gains in Brent crude, incentives foreign buyers of U.S. crude oil. EIA on Wednesday reported U.S. crude exports at a record high 2.331 million bpd during the third week of the second quarter.

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

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Brian Milne