Oil Futures Reverse Declines

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange reversed Wednesday's supply-related declines as traders purchased contracts as a hedge against renewed concerns about slashed Venezuelan crude production.

A media report from Reuters early today indicated tankers waiting to load more than 24 million bbl of crude are sitting off Venezuela's main oil port. Media reports also indicated Wednesday (6/6) that June production from Venezuela, a member of the Organization of the Petroleum Exporting Countries, may be in doubt as the country might default on delivery obligations for up to 1.5 million bpd of contracted supply. Reports indicate PDVSA can only deliver 694,000 bpd to export markets, forcing the firm to consider declaring force majeure on the remaining balance of contract obligations.

Add to that expectations for additional U.S. sanctions on Venezuela following what has widely been called illegitimate presidential elections last month, and PDVSA infrastructure asset seizures by Conoco Phillips and the situation in Venezuela could get much worse before it improves, traders said.

"We've had weeks and weeks of bullish news driving the market higher," said Al Levine, president and CEO of Washington, D.C-based Powerhouse, a hedge and trade advisory. "Notwithstanding increased U.S. production, the market corrected on talk of additional world supply being brought online, but the bullish factors still remain in place."

Traders continue to keep an eye on the widening spread between Brent crude and West Texas Intermediate, which recently peaked at nearly $11 bbl. Traders said the spread is correlated with soaring U.S. oil production and reduced Venezuelan output. At last report the spread stood at $10.77 bbl. A widening spread makes WTI crudes a more valuable option for exports to world oil markets versus Brent.

While recent data from the Energy Information Administration suggest U.S. commercial crude supplies continue to build, inventories remain below year-ago levels. EIA data shows inventories remain 14.9% less than one year ago. EIA showed stocks increased 0.5% or 2.1 million bbl for the week ended June 1 to 436.6 million bbl.

Gasoline stocks, which rose for the third straight week, up 4.6 million bbl to 239.0 million bbl, remain 0.5% or 1.3 million bbl less than at the end of the equivalent week in 2017. Distillates, which saw stocks build to 116.8 million bbl, up 1.9% on the week, remain 22.7% lower than year-ago levels.

EIA data shows that while overall petroleum stocks rose 1.3% or 15.8 million bbl to 1.2098 billion bbl, although 136.7 million bbl or 10.2% below one year ago.

Near 9:00 AM ET, NYMEX July WTI futures were up 52 cents bbl at $65.25, though still near its lowest price in eight weeks, while the August contract rose 51 cents to $65.21 bbl.

ICE August Brent was up 66 cents at $76.02 bbl on uncertainty regarding current and future Venezuelan and Iranian crude production, while September rallied 71 cents to $75.67 bbl.

Following Wednesday's drop to new multi-week lows, NYMEX July RBOB rose 1.24 cents to $2.0824 gallon while the July ULSD contract gained 1.61 cents to $2.1427 gallon.

Brian Whary can be reached at brian.whary@dtn.com