Oil Rallies, WTI Expires at High

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

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied Wednesday, with the March West Texas Intermediate contract advancing for a sixth consecutive session and expiring at a 3-1/2 month high on the spot continuous chart.

Brent crude and the RBOB contract also ended the session at their highest settlements on the spot continuous chart since Nov. 12, 2018, with the ULSD contract holding below last week's $2.0203 gallon three-month high settlement. Backwardation in the ULSD forward curve is unwinding, with the gasoline contract in a seasonal uptrend.

The rally remained underpinned by production cuts by the Organization of the Petroleum Exporting Countries, optimism for a U.S./China trade deal, expectations the Federal Reserve will hold interest rates at current levels and supportive chart formations.

Growing U.S. oil production weighed on oil futures in early trading, along with expectations domestic commercial crude supply increased by about 2.5 million barrels (bbl) last week. Energy Information Administration data shows commercial crude stocks in the United States having increased for four consecutive weeks through Feb. 8 to a 15-month high at 450.8 million bbl, and 28.7 million bbl or 6.8% above the comparable year-ago period. Oil product inventories are expected to have been drawn down amid the refinery maintenance season joined by unplanned outages. Gasoline stocks are seen to have eased by about 250,000 bbl and distillate stocks drawn down 1.5 million bbl during the week-ended Feb. 15.

The American Petroleum Institute will publish weekly supply data at 4:30 PM ET Wednesday and the EIA their holiday-delayed report 11 AM ET Thursday.

The U.S. dollar softened in Wednesday afternoon trade, although edged off a two-week low traded earilier, ahead of the release of January minutes of the Federal Open Market Committee.

The minutes revealed a Federal Reserve planning a cautious approach before again hiking the federal funds rate, while noting concern over their December meeting in which the central bank lifted the rate 25 points to 2.25% by 2.5%.

"December FOMC communications were reportedly perceived by market participants as not fully appreciating the implications of tighter financial conditions and softening global data over recent months for the U.S. economic outlook," according to the minutes. "With regard to the Committee's post meeting statement, participants supported a proposed change in the forward guidance language that would replace the previous guidance referring to "some further gradual increases in the target range for the federal funds rate" with an indication that, in light of "global economic and financial developments and muted inflation pressures," the Committee would "be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate."

Fed officials expect U.S. gross domestic product to slow during the first half of 2019 compared with 2018 "but remain solid," with a modest restraining of GDP in the first quarter due to the partial government shutdown reversed during the second quarter.

On Wednesday, Nymex WTI March futures settled up $0.83 at $56.92 bbl, with the April contract settling up $0.71 at $57.16. ICE April Brent futures settled up $0.63 at $67.08 bbl, with the May contract settling up $0.66 at $67.13 bbl. Nymex RBOB March futures settled up $0.0343 at $1.5981 gallon, with April delivery settling up $0.0285 at $1.7644 gallon. ULSD March futures settled up $0.0237 at $2.0183 gallon, with the April contract settling up $0.0221 at $2.0181 gallon.

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

(BAS)

Brian Milne