CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures were modestly higher and the Intercontinental Exchange Brent contract slightly lower in early trading Wednesday, with March West Texas Intermediate futures trading near a $56.39 barrel (bbl) fresh three-month high on the spot continuous chart ahead of expiration Wednesday afternoon. The April WTI contract is holding a roughly $0.35 premium to the expiring contract, with little new news driving trading action early Wednesday.
Nymex oil products futures reversed off two-day lows while trading below Tuesday's three-month spot highs, with ULSD reaching a $2.0323 high and RBOB a $1.5862 gallon high day prior. ICE April Brent futures reversed lower after trading a penny shy of Monday's $66.65 bbl three-month spot high, while at near parity with May delivery as backwardation in the forward curve weakened in early trading.
In midmorning trade, Nymex March WTI futures were up $0.10 near $56.20 bbl and April Brent down $0.10 at $66.35 bbl. March ULSD futures were up 0.55 cents near $2.00 gallon, and March RBOB futures were 1.55 cents higher near $1.5795 gallon.
The market continues to trend higher despite the early session softness bolstered by steep production cuts by the Organization of the Petroleum Exporting Countries led by a determined Saudi Arabia. OPEC cuts are offsetting noncompliance by Russia and other non-OPEC countries that are part of a six-month production agreement that runs through the end of June.
Involuntary production cuts by Venezuela, Iran, and Libya are bolstering OPEC compliance with the agreement despite their exempt status due to U.S. sanctions and warring militant activity in the case of Libya.
OPEC cuts are seen balancing the oil market during the first half of 2019. Energy Information Administration sees a global supply drawdown in February, while the International Energy Agency expects lower oil prices and strong petrochemical demand to boost global oil consumption this year. IEA sees world oil demand consumption growing 1.4 million barrels per day (bpd) this year, up from a 1.3 million bpd year-on-year growth rate in 2018.
Growth in U.S. crude production continues to cap the upside in oil futures; indeed a reason for the OPEC production agreement. The market was again reminded of the U.S. energy renaissance by a monthly report released Tuesday afternoon by EIA.
In its monthly Drilling Productivity Report, EIA projected oil production in the key seven basins in the United States would increase 84,000 bpd to 8.398 million bpd in March, and revised higher this month's estimated output rate. In January, EIA projected U.S. oil output this month would increase by 62,000 bpd, with Tuesday's report now estimating an 89,028 bpd growth rate.
U.S. dollar firmed from Tuesday's 1-1/2 week low in early trading ahead of the afternoon release of minutes from January's Federal Open Market Committee meeting, when Fed officials looked to assuage a firestorm lit in December by an increase in the federal funds rate and expectations more would be coming this year. Higher interest rates would slow economic growth, and investors believed in late December the Fed was deaf to the message sent by a broad-based sell-off in equities and commodities in the fourth quarter.
Fed officials have stressed patience since the December meeting, underpinning bullish sentiment for growth in what might be dubbed the Fed put. Progress in U.S.-China trade talks have also bolstered market sentiment, with the two countries appearing eager to avoid an escalated trade war.
Brian L. Milne can be reached at firstname.lastname@example.org
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