Oil Lower in Friday Trade

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent crude on the Intercontinental Exchange moved lower in midmorning trade Friday, with West Texas Intermediate reversing off a $58.95 barrel (bbl) fresh four-month high ahead of this afternoon's April options contract expiration.

Nymex April WTI futures were down $0.40 at $58.20 bbl midmorning, with ICE May Brent $0.70 lower near $66.50 bbl. Nymex April RBOB futures were 1.75 cents lower at $1.8320, with the April ULSD contract down 1.9 cents near $1.9660 gallon.

WTI, Brent and RBOB futures have all traded at four and five month highs Thursday, with the upside stalled after encountering overhead resistance. A move by WTI above $60 bbl and Brent over $70 bbl is seen prompting increased drilling in the United States which slowed during the first week of March that could swamp demand amid a slowing world economy. Higher oil prices would exacerbate a slowdown in economic growth, especially in countries such as India which alongside China has been a primary driver in expanding world oil consumption.

The concern over oil demand comes despite a morning report from the International Energy Agency maintaining its expectation that the global consumption rate would grow at 1.4 million barrels per day (bpd) to 100.6 million bpd this year, a quicker expansion pace than in 2018 when demand grew by 1.3 million bpd.

On cue, industrial production in the United States edged up a less-than-expected 0.1% in February after a 0.4% decline in January and manufacturing contracted for a second straight month, down 0.4% against expectations for a 0.4% gain and following a 0.5% fall in January.

The U.S. dollar weakened in response to the softness, briefly finding strength midmorning on a larger-than-expected boost in consumer sentiment.

The preliminary March reading for University of Michigan's Consumer Sentiment Index was 97.8 against estimates for 95.2 following February's 93.8 reading. Consumers with lower incomes drove the monthly gain, although more affluent consumers remained optimistic, according to Richard Curtin, the survey's chief economist.

"The data indicate that real consumption will grow by 2.6% in 2019 and that the expansion will set a new record length by midyear," according to the release of results.

While warning the power loss this week in Venezuela has had a serious adverse effect on the country's oil industry and will remain a threat going forward, IEA suggested Saudi Arabia had enough spare capacity to offset the loss in theory. For its part, Saudi Arabia said it would hold oil production at 9.8 million bpd this month and in April, 500,000 bpd below quota, and suggested a production agreement between the Organization of the Petroleum Exporting Countries, Russia and nine other non-OPEC producers lowering output 1.2 million bpd could be extended beyond its current six-month term which runs to June 30.

IEA projects world oil demand would outpace supply by 500,000 bpd in the second quarter following a slight surplus during the first quarter, with the Paris-based agency's outlook not considering the seriousness of Venezuela's power issues on oil production and delivery.

On Thursday, OPEC cited secondary sources in reporting crude production by its 14 members declined 221,000 bpd in February to a 30.549 million bpd four-year low.

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