Oil Futures End Mostly Down

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Intercontinental Exchange Brent crude settled mixed, with the gasoline contract bucking the decline by crude and ULSD futures to settle at a one-week high.

Oil futures were under pressure Thursday as concern slowing world economic growth would dent global oil demand reemerged as the market contemplated a slowdown in the German economy linked to a decline in trading with China. The decline in German export sales turned the focus to the U.S.-China trade dispute that has slowed world trade and the Chinese economy, with China's manufacturing sector contracting in December.

This morning, the Organization of the Petroleum Exporting Countries projected in their Monthly Oil Market Report Chinese oil demand would grow 340,000 barrels per day (bpd) year-on-year in 2019, slowing from 2018's 390,000 bpd annualized growth rate. OPEC expects world oil demand to grow 1.29 million bpd to 100.08 million bpd this year, so China accounts for 26.4% of the projected consumption rate.

"Going forward in 2019, oil demand growth in China is foreseen at slightly lower levels, as economic development is assumed to marginally ease," according to today's MOMR, with OPEC assuming China's gross domestic product to expand 6.1% this year compared with annualized growth of 6.5% in 2018. Should China's GDP growth slow more than expected, world oil demand is seen directly affected.

Earlier this week, Beijing announced a 1.2 yuan stimulus package for this year to boost slowing economic growth, which rallied oil futures and equities on Tuesday.

Senior Chinese trade officials will meet with their U.S. counterparts in Washington, D.C., on Jan. 30-31, with China's chief trade negotiator, Vice Premier Liu He, to attend. The talks follow a three-day meeting in Beijing between midlevel trade representatives earlier this month.

Both countries face high stakes in their need to reach an agreement by March 1, the final day of a 90-day truce in their trade dispute agreed to by U.S. President Donald Trump and Chinese President Xi Jinping. Reports indicate the Trump administration has already filed the necessary paperwork to lift tariffs from 10% to 25% on a slew of Chinese imports on March 2, with China expected to respond with retaliatory action.

Easing West Texas Intermediate and Brent futures also follow OPEC's MOMR showing OPEC crude production plunged 751,000 bpd from November to 31.578 million bpd in December, the lowest OPEC output rate since September 2015. The steep monthly decline was led by Saudi Arabia, where production dropped 468,000 bpd from an 11.021 million bpd record high in November to 10.553 million bpd. The large cut came in ahead of a six-month production agreement that took effect Jan. 1 reducing OPEC output by 800,000 bpd.

The OPEC report, which cites secondary sources in reporting member production rates, showed a steep 159,000 bpd decline in Iranian crude production to 2.7969 million bpd in December, also a low last experienced in September 2015. Iran's exports have consistently declined each month since the United States pulled out of the 2015 nuclear accord in May 2018 and re-imposed sanctions on the Islamic Republic. The latest round of U.S. sanctions on Iranian oil exports took effect in early November.

Crude production in Libya, where warring militias fight for control of the North African nation, slumped 172,000 bpd to a four-month low at 928,000 bpd in December, as a key oilfield was targeted.

In contrast, the Energy Information Administration reported U.S. crude production jumped 200,000 bpd during the week ended Jan. 11 to an 11.9 million bpd fresh record high, and expects domestic output to average 12.1 million bpd this year—1.2 million bpd above the 2018 production rate.

Brent's premium to WTI futures widened slightly to a $9.11 bbl one-month high at settlement, reflecting lower OPEC output and increases in U.S. production.

The contango in Brent's forward curve has also eased, with March delivery moving into a $0.02 premium to April at settlement, suggesting world oil supply is tightening. This dynamic follows news earlier this month that the Saudis would reduce their exports by 800,000 bpd from November to 7.1 million bpd in February.

ICE March Brent settled down $0.14 at $61.18 per barrel (bbl), with NYMEX February WTI futures ending $0.24 lower at $52.07 bbl. A stronger U.S. dollar, which reached a two-week high Thursday, also weighed on the U.S. crude contract.

NYMEX February ULSD futures settled down 1.03 cents at $1.8843 gallon, and February RBOB futures gained 1.41 cents to a $1.4300 gallon settlement.

The International Energy Agency will update its 2019 global outlook for oil supply and demand Friday morning, and the Federal Reserve will issue its reading on U.S. industrial production for December. The market expects industrial production growth to have slowed from 0.6% in November to 0.3% in December, and for manufacturing to have ticked up 0.1%.

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