Oil Gains Amid Late Session Buying

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery listed on the New York Mercantile Exchange and Intercontinental Exchange Brent crude advanced midweek amid market-on-close buying following a choppy trade session weighed down in early trading on bearish weekly supply data for the United States.

Oil futures notched their second consecutive session with an advance as the market dials back dire predictions of world economic doom. Although the rate of growth is slowing, while the partial U.S. government shutdown will sharply weigh on domestic growth should it continue for several more weeks.

In their Beige Book released Wednesday afternoon, the Federal Reserve found economic activity increased in most of the United States, with eight of the 12 Fed districts reporting modest to moderate growth. Optimism eased because of "increased financial market volatility, rising short-term interest rates, falling energy prices, and elevated trade and political uncertainty."

The labor market remained tight across all regions, with firms "struggling to find workers at any skill level," according to the Beige Book, which is based on information collected on or before Jan. 7.

"Minneapolis indicated that construction firms had turned down business because they could not find workers, and Atlanta reported that a few contacts were either actively overstaffing or retaining employees through lulls in demand in anticipation of future growth."

Near the time of the release of the indicators, British Prime Minister Theresa May won a confidence vote in the UK Parliament 325 to 306. The no confidence vote was called following Tuesday's vote on May's plan to leave the European Union, which went down in a historic 432 to 202 defeat.

News Tuesday that China would stimulate its economy, joined by calls from European Central Bank President Mario Draghi, that more stimulus for the eurozone is needed underpinned market confidence. So too, did a string of comments from Fed officials that the central bank would take a cautious approach to lifting interest rates.

Market optimism washed over bearish data from the Energy Information Administration released midmorning Wednesday showing U.S. crude production jumped 200,000 barrels per day (bpd) to an 11.9 million bpd fresh record high last week, joined by another week of large builds for oil products. Total commercial domestic stocks of crude and products increased 5.0 million barrels (bbl) during the week ended Jan. 11 to a 1.2604 billion bbl three-month high.

In its Short-term Energy Outlook released Tuesday, EIA projected U.S. crude production would average 12.1 million bpd this year and 12.9 million bpd in 2020, "with most of the growth coming from the Permian region of Texas and New Mexico."

At settlement, Nymex February West Texas Intermediate advanced $0.20 to $52.31 bbl, and ICE March Brent gained $0.68 to $61.32 bbl. Brent's premium over WTI widened to a $9.01 bbl one-week high.

Nymex February RBOB futures settled up 0.45 cents at $1.4159 gallon, with the February ULSD contract rallying 2.24 cents to a $1.8946-gallon settlement.

Below normal temperatures for the eastern half of the United States are forecast through Feb. 8 by the National Weather Service Climate Prediction Center, with the colder-than-usual weather seen spurring heating demand in the Northeast, where demand for heating oil is concentrated.

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

(CZ)

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