Oil Futures Mixed in Early Trade

WASHINGTON (DTN) -- New York Mercantile Exchange nearest-delivered oil futures and Intercontinental Exchange Brent futures moved mixed in early trade Thursday amid ongoing supply cuts from Organization of the Petroleum Exporting Countries joined by U.S. sanctions against Iran and Venezuela's oil industries. Gains were capped by surging production in the United States and a stronger dollar.

In late-morning trade, NYMEX April West Texas Intermediate futures shifted $0.27 higher at $56.49 per barrel (bbl), while ICE May Brent futures rose $0.10 to trade at $66.09 bbl. The April ULSD contract lost $0.0079 at $2.0083 gallon and NYMEX RBOB April futures were trading near $1.80 gallon for the first time since late October amid gasoline's seasonal uptrend.

WTI futures are posting modest gains following Wednesday's decline amid surging crude oil production and building inventories in the United States. Energy Information Administration reported a larger-than-expected 7.1 million bbl build to 452.93 million bbl in domestic commercial crude stocks for the week ended March 1, while output remained at a record 12.1 million barrels per day (bpd), an increase of 1.731 million bpd from a year ago.

Despite the bearish supply data, WTI was boosted by an increasing rate of U.S. crude oil exports, with demand from foreign buyers increasing amid the current tightness in the global oil market. EIA reported U.S. exports averaged 3.033 million bpd during the four weeks ended March 1, 92% above the comparable year-ago period. An infrastructure buildout is seen to gradually removing constraints for low-cost U.S. Permian Basin shale oil to reach overseas markets.

Steep production cuts by OPEC continue to support global crude prices, as the 14 nation producer group scales back production faster than many analysts expected. According to several surveys released earlier this week, OPEC's output dropped last month to the lowest level since 2015 to a range of 30.50 million bpd and 30.68 million bpd, indicating 101% compliance rate with the agreed cuts.

U.S. sanctions on oil industries in Iran and Venezuela have helped with OPEC compliance, working to significantly tighten the global market for crude oil. Estimates suggest as much as 1.4 million bpd of Iranian oil exports have been taken out of the market following the U.S. pullout of the 2015 Iranian nuclear accord in May 2018.

Venezuela's state-run oil firm PDVSA this week declared a maritime emergency, citing trouble accessing tankers and personnel to export its oil amid the sanctions. According to Reuters, PDVSA's maritime arm, PDV Marina, lacks nearly 160 people, including captains and operators to take back 10 vessels from a German operator due to unpaid fees. U.S. sanctions, weak finances and a sharp decline in oil output have prompted many suppliers and partners to stop working for the company.

Early morning gains for Brent futures were capped by investors' growing concerns over the slowdown in Eurozone, as EU's collective economy grew annually at 1.1% in the fourth quarter 2018, the slowest pace in five years. A near recession in Germany, Europe's largest economy and prospects of hard Brexit have left the European economy in a weakened condition. In an attempt to prompt the ailing economy, the European Central Bank announced today that it will keep the key interest rate steady at zero through the end of the year and will offer more cheap loans, with plans to withdraw monetary stimulus currently on hold.

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