CRANBURY, N.J. (DTN) -- After holding gains through most of Wednesday's session, New York Mercantile Exchange West Texas Intermediate and Intercontinental Exchange Brent futures reversed down during market on close trade on concern slowing economic growth in 2019 would dent global oil demand exacerbated by seasonal weakness in the first quarter.
Late session selling followed weekly statistics released by the Energy Information Administration midmorning Wednesday that were mixed overall, although bearish for crude and gasoline compared with data released late Tuesday by the American Petroleum Institute. EIA data lent upside support for distillate fuel, with RBOB futures ending lower today and the ULSD contract eking out a modest gain.
Late session selling came despite Wednesday's Monthly Oil Market Report from the Organization of the Petroleum Exporting Countries in which OPEC maintained its outlook for global oil demand and reduced its forecast for non-OPEC supply growth in 2019 by 80,000 barrels per day (bpd) to 2.16 million bpd. In their report, OPEC said the lower projection was due to Canada's mandate for oil producers to reduce production in early 2019 to clear inventory and the OPEC+ production agreement reached last week pledging cuts of 1.2 million bpd with 400,000 bpd of the reduction to come from Russia and nine other non-OPEC oil producers.
"The 2019 non-OPEC supply forecast is faced with many challenges, including changes in the intensity of drilling and completion in the U.S. shale industry, bottlenecks in the transportation of oil in the Permian Basin, Western Canada and even in the Williston Basin in North Dakota, as well as the realization of final investment decisions (FIDs) regarding projects in other non-OPEC countries," said OPEC.
And while maintaining its outlook that world oil demand would grow at an annual rate of 1.29 million bpd or 1.3% for a consumption rate of 100.08 million bpd, OPEC added, "While the upside to global growth is limited, the risk remains skewed to the downside amid ongoing trade tensions, monetary tightening and geopolitical challenges."
OPEC projects world oil demand of 99.1 million bpd in the cyclically weak first quarter from peak demand in the current fourth quarter of 99.98 million bpd.
Concern over world oil demand bled into the midweek session despite news that negotiations between the United States and China were advancing during their 90-day truce, with reports indicating China is considering a plan that reduces tariffs on U.S. automobile imports from 40% to 15% and plans to import more U.S. products, including soybeans.
Equity markets rallied amid optimism the world's two largest economies would reach an agreement and avoid an escalation in their trade dispute. The Dow Jones Industrial Average was up 150 points in late afternoon trading Wednesday, paring an advance of more than 450 points.
News Kuwait and Saudi Arabia are close to an agreement to restart an oil field in disputed territory amid a U.S. brokered deal weighed on markets. According to the Wall Street Journal on Wednesday, the two countries could restart operations in the "neutral zone," during the first quarter, with the field having a production capacity of 500,000 bpd. Production in the neutral zone was halted three years ago.
Bringing more oil to the market is bearish and would dilute the OPEC+ agreement. Yet, the Wall Street Journal said resumption of the field would coincide with a push by the United States to toughen sanctions on Iranian oil exports, with the United States last month issuing eight countries waivers that are speculated to allow as much as 1.0 million bpd of Iranian oil to flow to markets without the risk of financial punishment form the United States.
Citing secondary sources, OPEC said Iranian crude production dropped 380,000 bpd in November to 2.954 million bpd, the lowest output rate since January 2016. A previous round of U.S. sanctions on Iranian oil exports ran from 2012 to 2015, ending in December 2015 with the Iranian nuclear accord brokered by the Obama administration.
At settlement, Nymex January WTI futures were down $0.50 at $51.15 barrels (bbl) and ICE February Brent crude dipped $0.05 to $60.15 bbl. Nymex January ULSD futures edged up 0.38 cents to $1.8509 gallon, and the January RBOB contract declined 1.94 cents to $1.4204 gallon.
Brian Milne can be reached at Brian.Milne@dtn.com
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