Oil Rallies in Early Trade

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent futures on the Intercontinental Exchange continued higher in early trading Thursday, extending Wednesday's rally spurred by federal data showing an unexpected draw in gasoline stocks in the United States amid strong demand, while markets contemplate the effect of U.S. sanctions on Venezuela's crude exports.

In midmorning trade, Nymex March West Texas Intermediate futures were up $0.87 at $55.10 barrel (bbl), outpacing the advance by Intercontinental Exchange March Brent, which was up $0.47 at $62.12 bbl ahead of expiration Thursday afternoon. Nymex February RBOB futures rallied 2.46 cents to $1.4069 gallon, and February ULSD futures were 2.66 cents higher at $1.9250 gallon, with both contracts set to expire at the close.

Oil futures continue to find support from weekly supply data from the Energy Information Administration, which detailed a smaller-than-expected build in U.S. commercial crude stocks, while implied gasoline demand spiked to a four-month high.

Government data reported domestic crude supplies edged up by 900,000 bbl to push inventory to a 445.9 million bbl, versus the market expectation of a 3.1 million bbl rise. The build comes as U.S. crude exports eased 91,000 barrels per day (bpd) during the week profiled to a 1.944 million bpd three-month low, while refiners cut runs amid refinery maintenance. Crude inputs at U.S. refiners tumbled 586,000 bpd to a 16.463 million bpd 10-week low with the run rate down 2.8% to 90.1% of capacity. EIA data also showed a sharp drop in crude imports of more than 1.0 million bpd during the profiled week, which in combination with substantive decline in refining activity has led to a minor build to crude stocks.

In line with seasonal trend, the drop in refining activity has yielded the first weekly drop in gasoline inventories of 2019. Government data 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 bpd to a 9.564 million bpd four-month high.

A precipitous drop in U.S. crude imports came amid a new round of sanctions on Venezuela that target the country's oil supplies. Venezuela is the home to arguably the largest oil reserves in the world, however national oil company PDVSA is currently producing only 1.17 million bpd, the lowest level in more than 50 years. The loss of Venezuela's production volumes was the largest unplanned fall in crude oil output in 2018, with the trend is expected to intensify as U.S. sanctions take effect.

The sanctions are aimed at driving Nicolas Maduro out of office following the start of his second term as Venezuelan president this month after elections in May 2018 were called fraudulent by more than 60 countries. Last week, the United States, Canada, and most South American countries recognized Juan Guiado, the head of Venezuela's National Assembly, as the legitimate leader of Venezuela.

The United States said U.S. refiners can still buy crude from Venezuela, but the revenue must go into blocked accounts in the United States and not to the Maduro government. However, PDVSA is unlikely to load supply on U.S. vessels since Maduro still controls the state oil company.

"My advice to bankers, brokers, traders, facilitators, and other businesses: don't deal in gold, oil, or other Venezuelan commodities being stolen from the Venezuelan people by the Maduro mafia. We stand ready to continue to take action," tweeted John Bolton, assistant to the President for National Security Affairs, Wednesday.

EIA data shows that U.S. imports of Venezuelan crude averaged about 547,000 bpd in December, down almost 55% from December 2015. At its peak U.S. imports of Venezuelan crude were at 1.1 million bpd in 2007.

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