CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and the Intercontinental Exchange Brent contract settled at or near one-month highs following the conclusion of trade talks between the United States and China, further bolstered as Saudi Arabia confirmed it was reducing its crude exports while the Federal Reserve will take a cautious approach to additional interest rate hikes in 2019.
A scheduled two-day meeting between midlevel U.S. and China trade representatives were extended for a third day, as both parties noted progress in discussions aimed at resolving U.S. grievances over China's trade practices, rallying equities and oil futures.
Markets sold off hard in the fourth quarter on worry the U.S.-China trade dispute would escalate and damage world trade and the global economy, which was already showing signs of a slowdown, dampening the outlook for growth in world oil demand. Senior trade representatives from the two countries will meet later this month.
The brightening economic outlook overshadowed bearish weekly inventory statistics released at midmorning by the Energy Information Administration, which showed a modest 1.7 million bbl draw in U.S. commercial crude stocks for the week ended Jan. 4 that was well below the 6.127 million bbl decline reported late Tuesday by the American Petroleum Institute. EIA also reported a second week of sizable builds for gasoline and distillate fuels for the week profiled, while implied demand for distillates plunged to a three-year low.
Wednesday afternoon, minutes from the Dec. 18-19 Federal Open Market Committee meeting showed central bank officials would take a cautious approach to further increases in the federal funds rate, which they lifted by 25 basis points to 2.5% last month.
FOMC officials "reiterated that this assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. More generally, members noted that decisions regarding near-term adjustments of the stance of monetary policy would appropriately remain dependent on the evolution of the outlook as informed by incoming data."
The U.S. dollar, already weakening on the session, tumbled to a three-month low following the release of the minutes. Equities rallied early on the positive outcome of this week's U.S.-China trade negotiations, but pared gains on concern over the ongoing government shutdown.
Earlier in the day, reports emerged quoting Saudi Arabia Energy Minister Khalid al-Falih in projecting Saudi crude exports would average 7.2 million bpd in January and 7.1 million bpd in February compared with 7.9 million bpd in November. The Saudi minister indicated the kingdom would do what it needed to balance the oil market.
The lower export rate implies the Saudis will cut deeper than the reported 250,000 bpd reduction agreed to in December as part of the 1.2 million bpd six-month cut in oil output by the Organization of the Petroleum Exporting Countries, Russia and nine non-OPEC oil producing countries.
NYMEX February West Texas Intermediate futures settled up $2.58 at $52.36 bbl, the highest settlement on the spot continuous chart since Dec. 13. The settle above psychological resistance at $50 bbl is seen boosting buying interest. ICE March Brent settled up $2.72 at $61.44 bbl. NYMEX February ULSD futures settled up 5.38cts at $1.8808 gallon, and February RBOB futures gained 6.28cts with a $1.4254 gallon settlement.
Brian L. Milne can be reached at firstname.lastname@example.org
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