Oil Gains on Tightening Global Market

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Intercontinental Exchange Brent futures advanced Tuesday afternoon, finding steady ground on global supply tightening following Monday's technically driven selloff exacerbated by U.S. President Donald Trump's call on Organization of the Petroleum Exporting Countries to ease its efforts in boosting the market.

By Tuesday afternoon oil traders shifted their focus back from the Trump's tweet urging OPEC to relax and go easy on price-boosting production cuts towards increasingly tightening market fundamentals. In an interview with Bloomberg, Jeffrey Currie, head of commodities research at Goldman Sachs said that OPEC could rebalance the market by April through an applied strategy of "shock and awe" -- sharp and deep cuts in the short-term to lift oil prices, while subsequently recapturing market share from competitors, namely surging shale production in the United States. The Saudis and their Gulf allies are cutting deeper than what they agreed to in December, boosting the price by some 20% since OPEC+ agreement came into effect.

Goldman Sachs sees oil demand remaining strong in short- to near-term despite recent fluctuations in the market sentiment over economy.

The argument for robust oil demand is supported by an upbeat Consumer Confidence reading, which was reported this morning at 131.4 for February, well above expectations for a 125.0 reading, and following a three-month downtrend. The downtrend was due to the partial government shutdown.

Because of the shutdown, the market expects a slowdown in U.S. gross domestic product to have occurred during the fourth quarter when the Bureau of Economic Analysis releases its delayed estimate Thursday morning. The market anticipates 2.2% annualized growth rate for the fourth quarter following a 3.4% expansion in the third quarter.

At settlement, Nymex WTI April futures were up $0.02 at $55.50 barrels (bbl), with the ICE Brent April contract up $0.60 at $65.36. May Brent is holding a modest $0.15 premium to the April contract ahead of expiration Thursday afternoon.

Nymex March RBOB and ULSD futures also expire Thursday afternoon.

Nymex RBOB March futures settled up 4.11 cents at $1.5863 gallon, while the April contract settled at a 13.8 cents gallon premium to the expiring contract, reflecting the preseason rally for the gasoline market. Nymex ULSD March futures were up 2.93 cents at $1.9985 gallon, with April delivery at near parity.

The Energy Information Administration will release U.S. oil supply data for the week-ended Feb. 22 at 10:30 AM ET Wednesday.

Market expectations for weekly supply changes are again following the seasonal tendency, with crude supply expected to have increased 2.5 million bbl during the week profiled amid refinery turnaround activity and products to have declined. Expectations call for gasoline stocks to have been drawn down by 1.0 million bbl last week, and for distillate fuel to have fallen 1.6 million bbl.

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