Oil Futures Rally on Crude Draw

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and the Brent contract on the Intercontinental Exchange rallied during the midweek session on bullish crude statistics showing lower U.S. production and an unexpected drawdown in commercial stocks, data that supports some analysts' views that the global oil market is tightening.

The 3.9 million barrels (bbl) drawdown from U.S. commercial crude inventory during the week-ended March 8 was likely due to re-benchmarking in the crude production figure following Tuesday's monthly Short-term Energy Outlook that revised lower its forecast for this year's output by 130,000 barrels per day (bpd) from February's outlook to 12.3 million bpd. EIA said it reviews monthly differences between its weekly and monthly statistics, and makes adjustments to its data series accordingly.

"If we find a large difference between the two series, we may re-benchmark the weekly production estimate on weeks when we release STEO. This week's domestic crude oil production estimate incorporates a re-benchmarking that lowered estimated volumes by 130,000 barrels per day, which is less than 1.1% of this week's estimated production total," said EIA.

EIA reported domestic crude production for the week profiled down 100,000 bpd from a record high to 12.0 million bpd, 1.619 million bpd or 15.6% above year ago. The year-on-year growth rate in the weekly figure has narrowed since the first week in January when it was 2.208 million bpd or 23.3%.

Baker Hughes on March 8 reported the U.S. oil rig count at an 834 10-month low, with 51 rigs taken out of service year-to-date. Drillers have become more efficient that partly explains the decline in rig activity, while Wednesday's downward revision by EIA suggests domestic crude supply might have been overstated in recent weeks.

The tightening market comes as Saudi Arabia makes deep production cuts, with the reduction 500,000 bpd lower than their allotted output under a six-month production agreement between the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producers led by Russia. The Saudis indicated the kingdom's output would average 9.8 million bpd in March and April against a 10.311 million bpd allotted production rate under the OPEC+ agreement.

U.S. sanctions on Iran and Venezuela have also cut the flow of oil to the global oil market, with both OPEC members exempt from the OPEC+ accord. A widespread power outage in Venezuela is further crippling operations at state-owned oil company PDVSA, limiting upgrading activity for its tarlike crude and halting crude exports from a key terminal at the Jose port.

OPEC will provide production data for its members Thursday morning.

Gasoline data was also supportive, with stocks drawn down a fourth consecutive week through March 8, down 4.6 million bbl to a 10-week low at 246.1 million bbl last week. Since mid-February when the string of draws began, gasoline inventory has fallen 12.2 million bbl or 4.7%, although are 1.3 million bbl above year ago and 5.072 million bbl more than the five-year average.

West Texas Intermediate futures were further supported by a weaker U.S. dollar, which slid to a 96.46 1-1/2 week low, with domestic crude and the greenback having an inverse relationship. Key U.S. equity indices also gained on the session, with the Dow Jones Industrial Average up nearly 150 points late afternoon.

Nymex April WTI futures rallied to a $58.48 bbl four-month high on the spot continuous chart, settling the session with a $1.39 gain at $58.26 bbl. ICE May Brent crude futures settled up $0.88 at $67.55 bbl, the highest settlement on the spot continuous chart since Nov. 12, 2018.

NYMEX April RBOB futures surged 4.13 cents to a $1.8568 gallon settlement, and rallied to a $1.8752 nearly five-month high on the spot chart. April ULSD futures edged up 0.64 cents to a $1.9921 gallon settlement, with an unexpected 400,000 bbl weekly build weighing on the spot-month contract.

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


Brian Milne