Oil Backs Off 2019 Highs

WASHINGTON, D.C. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange backed off 2019 highs after last week's rally that ran into the start of this week, supported by production cuts from the Organization of the Petroleum Exporting Countries joined by positive developments in trade talks between the United States and China.

After the long Presidents Day holiday weekend, the Nymex WTI March contract was slightly higher Tuesday morning near $55.95 barrel (bbl) after trading at a $56.33 three-month spot high ahead of the contract's expiration Wednesday afternoon. April WTI futures are trading at a $0.35 bbl premium to the expiring contract. ICE April Brent futures were modestly lower near $66.35 bbl. The Brent contract traded at a $66.83 three-month spot high on Monday. Nymex March ULSD contract shed 0.55 cents to $2.0150, backing down from a $2.0323 three-month spot high. Nymex March RBOB futures lost 0.40 cents to near $1.5690 gallon, easing from a $1.5862 three-month spot high.

Oil futures moved mixed Tuesday morning, as traders waited for new details to emerge from the latest round of U.S.-China trade talks. Negotiations resume Tuesday in Washington following last week's meetings in Beijing with China's President Xi Jinping, indicating substantial progress has been made. However, tensions between the two nations have heightened as they attempt to strike a deal to prevent any further escalation in their dispute. The Chinese government said on Monday that the United States is inhibiting its industrial development by alleging that Chinese mobile networks supplied by Huawei Technologies poses cybersecurity threats to countries rolling out new internet systems. U.S. President Donald Trump is considering delaying an increase in tariffs on $200 billion in Chinese imports from 10% to 25% set to take effect on March 2 by 60 days.

As traders are cautious to take large new positions before the outcome of the talks, Saudi Arabia -- the de facto leader of OPEC, is sharply reducing production and exports to ensure that the OPEC deal to cut 1.2 million barrels per day (bpd) in production is credible. Last week, Saudi Energy Minister Khalid al-Falih said output from the kingdom would decline to 9.8 million bpd in March, cutting deeper than agreed under the deal.

International Energy Agency reported last week that OPEC output dropped to a nearly four-year low at 30.83 million bpd in January as the six-month agreement took effect, with Saudi output at 10.213 million bpd against a 10.311 million bpd compliance level.

The deep Saudi cuts are also an effort to boost overall compliance with the OPEC production cuts, as Russia has yet to meet its target to curb output to 11.191 million bpd agreed to in Vienna in December. Russian Energy Minister Alexander Novak said last week the country was gradually cutting output, while the compliance target would be reached in May. OPEC last week reported Russian crude production declined 90,000 bpd in January to 11.56 million bpd.

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