Oil Futures Rally on Sanctions

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Intercontinental Exchange Brent crude rallied midweek as U.S. sanctions on Venezuela have captured the attention of traders. A spike in gasoline demand in the United States reported midmorning added to the upside push, with West Texas Intermediate futures surging to a 10-week high.

Late session support was also provided by the Federal Reserve, which concluded a two-day Federal Open Market Committee meeting on monetary policy by holding the federal funds rate unchanged at 2.25% by 2.5%, and telegraphed that it was unlikely that they would hike the rate in the near future because of "global economic and financial developments."

It was the clearest sign yet central bank officials would be cautious in tightening monetary policy, which increases borrowing costs, after Fed Chairman Jerome Powell triggered a massive selloff in equities and oil futures in December during a tone-deaf news conference.

The U.S. dollar whipsawed down on the FOMC statement, weakening to a nearly three-week low, while the Dow Jones Industrial Average was up more than 500 points at one point this afternoon. Equities were also lent upside support following this morning's National Employment Report from payroll service provider ADP, reporting non-government jobs increased by 213,000 in January. The Labor Department will release its nonfarm employment report Friday, with the agency last month reporting 263,000 new jobs were created in the United States in December.

NYMEX March WTI futures settled up $0.92 at a $54.23 per barrel (bbl) 10-week high on the spot continuation chart, edging off a $54.93 intraday high. ICE March Brent futures settled up $0.33 at a 10-day $61.65 bbl high ahead of expiration Thursday afternoon, ending at a $0.11 premium to April. Brent's premium to WTI slid to a $7.42 bbl one-month low.

Ahead of Wednesday's rally, Sarah Ladislaw, senior vice president and director of CSIS Energy and National Security Program, this morning tweeted: "Just wanted to point out that we are living in a scenario where the U.S. is sanctioning Venezuelan crude oil exports (effectively) and Iranian oil exports, OPEC is cutting, Alberta is curtailing, and oil price today is still around $60/54 (brent/WTI)."

Oil products futures rallied to one-week highs although pared their advance ahead of the close, and in front of Thursday's expirations of the February contracts.

NYMEX February ULSD futures edged up a fractional nine points to settle at $1.8984 gallon while the March contract narrowed its discount to the expiring contract to 15 points.

NYMEX February RBOB futures settled up 3.14 cents at $1.3823 gallon, with March delivery ending the session at a 2.03-cent premium to the expiring contract.

The Energy Information Administration reported a 2.2 million bbl draw in commercial gasoline stocks, the first decline in nine weeks, lowering inventory from a record high to 257.4 million bbl as of Jan. 25. The draw came as implied gasoline demand spiked 696,000 barrels per day (bpd) to a 9.564 million bpd four-month high.

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

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