Oil Pulls Back on Thursday

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange nearest delivery oil futures and Intercontinental Exchange Brent futures pulled back early Thursday, following softness across equity markets amid the continued government shutdown and the release of bearish weekly statistics from the Energy Information Administration on Wednesday.

After gaining 10% in eight consecutive sessions, Nymex February West Texas Intermediate futures reversed down, trading $0.51 lower to $51.85 barrel (bbl) while ICE March Brent moved down $0.60 to $60.84 bbl in midmorning trade. Nymex February ULSD futures shed 0.5 cents to $1.8803 gallon, while February RBOB futures lost 0.70 cents to a $1.4184 gallon.

Despite market optimism sparked by positive comments from both U.S. and Chinese officials on the progress of trade talks earlier this week, the Dow Jones Industrial Average fell more than 150 points Thursday morning along with declines by S&P 500 and Nasdaq indices before paring the losses. The stock market retreat is expressing anxiety over the continued government shutdown and its adverse effect on the economy that is weighting on oil futures.

Earlier this week, investor focus was on the three-day meeting in Beijing between midlevel representatives negotiating an end to a trade impasse between the world's two largest economies. It was the first face-to-face meeting between U.S. and Chinese trade officials since Dec. 1 when U.S. President Donald Trump and Chinese President Xi Jinping agreed to a 90-day truce in their trade dispute. Senior trade representatives are scheduled to meet later this month.

EIA data released midmorning Wednesday showed a modest draw of 1.7 million bbl to 439.7 million bbl in commercial crude supplies during the week of Jan. 4. The data detailed an oversupplied domestic market with stocks nearly 5% above the levels in the corresponding week a year ago and almost 8% above the five-year average for this time of the year. Bearish weekly data showed steep builds in gasoline and distillate fuels for the second straight week, while demand for distillate fuels during the profiled week fell to a three- year low.

In oil market news, Reuters reported that Saudi Arabia's energy minister was confident that production cuts of 1.2 million barrels per day (bpd) by Organization of the Petroleum Exporting Countries and its allies would bring the oil market into balance in 2019. During a Wednesday interview, Saudi Energy Minister Khalid al-Falih also said he would not rule out an additional action by OPEC, adding that market conditions improved substantially compared to just a few weeks ago.

The comments from the top Saudi official suggest that OPEC would do what it takes to balance the world oil market in 2019. Oil futures surged this week on the reports that Saudi Arabia intent to lower crude oil exports by 800,000 bpd from November level to 7.1 million bpd in February.

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