Oil Futures Higher on Wednesday

LOS ANGELES (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent crude on the Intercontinental Exchange rallied Wednesday afternoon on the sharp rebound in equity markets, paired with comments on improved stability in oil supplies from Russia's top energy official.

The surging oil prices were supported by the rebound in stock markets with the Dow rising more than 600 points on the session. Equities had their first advance in four days following an aggressive selloff on Christmas Eve. Despite the bearish report from the Bureau of Economic Analysis released late last week detailing a modest contraction in U.S. economic growth from the preceding reading of 3.5% to 3.4%, the White House was optimistic about the state of U.S. economy and equities markets. President Donald Trump claimed "an amazing opportunity to buy stocks" in a post-holiday tweet, while economic adviser Kevin Hassett assured the reporters Wednesday afternoon that Federal Reserve Chairman Jerome H. Powell's job is "100% safe." Markets were unnerved at the beginning of the holiday-shortened trade week at the possibility of Trump's firing Jerome H. Powell over the Fed's 25-basis-points hike of the federal funds rate to 2.5%. All major indexes are on pace to recover from the four-day losing streak, while S&P posted 2.9% gain and Dow Jon gained 2% Wednesday trading session.

The major factor behind the rallying oil futures were the comments made by Russia's Energy Minister Alexander Novak, suggesting the Organization of the Petroleum Exporting Countries and non-OPEC oil producers can schedule a meeting to discuss boosting the agreed production cuts earlier than April, while reassuring that OPEC+ is committed to bring the markets into balance. In an interview to Rossiya-24, Novak said oil prices would become more stable in the first half of 2019 while referring to market fundamentals. "I think the fundamental factors are the decrease of demand in winter and macro-economic conditions have contributed to a decline in oil prices. During the first half of 2019, due to joint efforts of OPEC and non-OPEC countries, the situation will be more stable, more balanced" said Novak.

OPEC and non-OPEC producers including Russia agreed in the beginning of December to curb output by 1.2 million barrels, which is equivalent to 1% of global demand. Production cuts are set to take effect Jan. 1 and run through the end of June, but the market has been discounting their effect on oil prices.

One of the factors driving this sentiment has been the opaqueness in details of which countries are making the cuts, suggesting shifty math. The production cuts are also coming from high output rates, a reoccurring theme in which producers ramp up production ahead of a planned meeting discussing output cuts.

Last week OPEC Secretary General Mohammad Barkindo attempted to bring more clarity into the agreement in an open letter to OPEC producers, suggesting the cartel and its allies will need to cut production by a deeper 3.02% to achieve the total cut of 1.2 million barrels, instead of the 2.5% originally discussed in Vienna. According to Reuters, OPEC is planning to release a table detailing voluntary supply cut quotas among its members and allies in an attempt to halt the fall in oil prices. In the interests of openness and transparency, and to support market sentiment and confidence, it is vital to make these production adjustments publicly available, Barkindo said.

Nonetheless, the market still thinks global oil production will be too high and prompt rapid inventory restocking that leads to a protracted supply glut and basement level world crude prices. The reason is tight shale oil production in the United States, where the Energy Information Administration projects U.S. oil production would average a record-high 12.1 million bpd in 2019, up 1.2 million bpd or 11% year-on-year.

In the late afternoon trade, NYMEX February WTI futures rose 8.7%, gaining $3.69 to settle at $46.22 bbl, while ICE February Brent crude shifted $4.00 higher to $54.47 bbl.

NYMEX Jan ULSD futures settled up 7.14cts to $1.7336 gallon, while Jan RBOB futures gained 8.16cts to $1.3304 a gallon settlement.

Liubov Georges can be reached at liubov.georges@dtn.com

(CZ)