Oil Futures Rally on Global Supply

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied for a third consecutive trade session Thursday. Brent, ULSD and RBOB futures contracts settled near three-month highs, while West Texas Intermediate futures settled and outside day up session at an eight-day high as the March options contract expired.

A downside reversal in the U.S. dollar from a two-month high offered respite for WTI futures, under pressure from U.S. commercial crude stocks that sit at a 15-month high at 450.8 million barrels (bbl) as of Feb. 8, data from the Energy Information Administration shows. Seasonal maintenance programs at U.S. refineries are also pressuring the U.S. crude benchmark while lending upside support for oil products. The refinery run rate sunk 4.8% to an 85.9% 16-month low during the first full week of February.

On Thursday, NYMEX WTI March futures settled up $0.51 at $54.41 bbl, with the April contract settling up $0.48 at $54.79. ICE April Brent futures settled up $0.96 at $64.57 bbl, with the May contract settling up $0.94 at $64.52 bbl.

NYMEX RBOB March futures settled up $0.0434 at $1.5085 gallon, with the April settling up $0.0320 at $1.6838 gallon. ULSD March futures settled up $0.0328 at $1.9716 gallon, with the April settling up $0.0317 at $1.9674 gallon.

Brent ended the session at a $10.16 bbl premium to WTI futures, the widest spread since Dec. 19, highlighting a tightening global oil market balance while domestic crude supply grows. U.S. crude production averaged 11.9 million bpd during the four weeks ended Feb. 8, up 1.820 million bpd or 18.1% against the comparable year ago period, with crude inventory building by 13.745 million bbl over the four-week period.

Contrasting with the domestic scenario, production cuts by the Organization of the Petroleum Exporting Countries, involuntary in the case of Venezuela, Iran and Libya, are seen balancing the market in the near term. The International Energy Agency Wednesday morning reported a 930,000 barrel-per-day (bpd) drop in OPEC crude production in January to a near-four-year low at 30.83 million bpd, with world supply estimated down 1.4 million bpd. The EIA Tuesday in their Short-term Energy Outlook projected total world oil supply would decline by 1.3 million bpd this month.

OPEC+ cuts of 1.2 million bpd run from January through June, although OPEC is optimistic that the agreement reached by its members, Russia and nine other non-OPEC oil producers would be extended when they meet in April. And while Russia is not yet in compliance with its quota in reducing production by 230,000 bpd -- OPEC reported a 90,000 bpd decline in January, and won't be until May, Saudi Arabia is picking up the slack.

Saudi Energy Minister Khalid al-Falih this week indicated the kingdom's crude production in March would drop to 9.8 million bpd, which compares with output in January of 10.213 million bpd, and a quota under the OPEC+ accord of 10.311 million bpd.

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

(BAS)

Brian Milne