Oil Futures Gain, Pare Advances

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent crude on the Intercontinental Exchange closed higher Tuesday on expected production cuts in 2019. However, the advances were pared on broader market worries, as investors revisit their enthusiasm regarding a ceasefire in the U.S.-China trade war.

Equity markets were down sharply at late afternoon, with the Dow Jones Industrial Average more than 700 points lower. Traders are dissecting limited details regarding the 90-day delay in new U.S. tariffs on Chinese imports. These new tariffs were set to take effect in January, but a delay was negotiated by U.S. President Donald Trump and Chinese President Xi Jinping over the weekend at the G-20 international forum in Argentina.

The selloff also comes ahead of Wednesday's closure of stock exchanges in observance of a National Day of Mourning for President George H.W. Bush, the 41st U.S. president, who passed Nov. 30 at the age of 94. The selloff suggests risk aversion as much as a rethink on the U.S.-China trade truce.

Both the NYMEX and ICE platforms will be open for regular session trade in oil futures Wednesday, while the Energy Information Administration will delay the release of weekly supply statistics from Wednesday morning until 11 a.m. EST Thursday.

The American Petroleum Institute will release its findings in the change in U.S. oil inventory for the final week of November Tuesday afternoon. A market consensus believes commercial crude stocks declined last week for the first time since mid-September, calling for a 1.2 million bbl drawdown. Both gasoline and distillate inventories are expected to have increased by about 1.0 million bbl each for the week ended Nov. 30.

Ahead of the Thursday-Friday meeting by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producing countries led by Russia, Bloomberg reported OPEC production was flat in November near 33.13 million bpd. A jump in Saudi production to a more than 11.0-million-bpd record high was countered by a 230,000-bpd drop in Iranian oil output and 160,000-bpd decline in Iraq production.

As OPEC+ countries negotiate ahead of the end of week meeting, the chance for success increased over the weekend after Russian President Vladimir Putin said he agreed with Saudi Crown Prince Mohammed bin Salman that a production cut is needed for next year. News reports continue to highlight an OPEC+ production cut of 1.3 million bpd from October output, which was recommended by an OPEC panel late last week.

Markets were also buoyed on news that Alberta mandated a production cut to draw down excess inventory.

"Last Sunday, Alberta Premier Rachel Notley announced plans to lower production of raw crude and bitumen by 325mbpd starting 1 January 2019 until excess oil in storage are drawn down. The reduction would then drop to 95mbpd sometime around the end of next year at the latest which coincides with the expectation of ENB's L3R in-service date," according to a research note from Bank of America Merrill Lynch. "The Alberta government also expects to acquire locomotives and rail cars by the end of 2019 to transport 120mbpd. The measures would help narrow the price differentials and improve the industry fundamentals which could provide positive read-throughs for the midstream sector."

Geopolitical dynamics affecting oil also lay close at hand, with the Wall Street Journal on Tuesday reporting the United States sent an aircraft carrier strike group to the Middle East which should arrive by week's end. U.S. officials said the deployment was to demonstrate a show of force against Iran. On Saturday, Iran test fired medium range ballistic missiles capable of carrying multiple warheads.

At settlement, NYMEX January West Texas Intermediate futures were up $0.30 at $53.25 bbl, and ICE February Brent gained $0.39 with a $62.08 bbl settlement. NYMEX January ULSD futures settled up 1.34cts at $1.9009 gallon, with the January RBOB contract 1.2cts higher with a $1.4434 gallon settlement.

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