Oil Mixed in Thursday Trade

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Intercontinental Exchange Brent futures are trading in narrow ranges with West Texas Intermediate and Brent near four-month highs Thursday morning, pushed up by a large drawdown in U.S. commercial crude oil inventories reported midweek, while the upside was capped by concerns over a prolonged U.S.-China trade dispute.

Nymex WTI May contract was down $0.10 near $60.13 barrel (bbl), trading near a $60.39 four-month spot high. ICE Brent May futures traded $0.39 lower at $68.11, edging off a $68.69 four-month spot high. Nymex ULSD April futures lost 1.15 cents to trade at $1.9966 gallon, with RBOB futures flat at $1.9166, edging off a $1.9209 five-month spot high.

Oil futures posted sharp gains Wednesday afternoon as the Energy Information Administration reported a 9.6 million bbl drop in U.S. commercial crude inventories during the week ended March 15, leaving stocks at the lowest level since early January.

The steep drawdown in U.S. crude oil stocks comes amid surging U.S. crude exports, up 846,000 barrels per day (bpd) to 3.392 million bpd in the profiled week, and ongoing production cuts from Organization of the Petroleum Exporting Countries. Amid an increasingly tightening global oil market, U.S. oil inventory and product stocks have dropped 45.21 million bbl or 3.6% since mid-January when they reached a 15-month high to a 1.2219 bbl to a 6-1/2 month low last week. A year-on-year surplus in crude stocks narrowed a sharp 22.827 million bbl or 67% during the last four weeks.

Thursday morning, the gains were capped by investors' growing concerns over the prolonged trade war between the United States and China following comments from U.S. President Donald Trump that U.S. tariffs on Chinese imports could stay in place for a "substantial period of time." Trump said on Wednesday that he would maintain tariffs on Chinese imports, even if a bilateral trade deal with Beijing is reached in order to ensure compliance with terms, which could mean years of negotiations and punitive tariffs.

The Trump administration has imposed 25% tariffs on $50 billion in Chinese imports and a 10% tax on $200 billion in goods, while China is seeking the removal of both sets of tariffs. Wednesday's remarks did not specify which sets of tariffs would be kept in place for compliance assurances.

While the markets already priced in the trade-war resolution, the possible extension sent the S&P 500 Index falling from above 2,850, the highest level since October. In midmorning trading, the S&P 500 and Dow Jones Industrial Average have rebounded, posting modest advances in early trading.

Wednesday's conclusion of the two-day Federal Open Market Committee meeting has also offered mixed support for the markets, with the Fed maintaining the federal funds rate in a range between 2.25% and 2.5% and suggesting the bank is unlikely to increase rates in 2019. Federal Reserve Chairman Jerome Powell told reporters Wednesday that the bank has a "positive" outlook for the U.S. economy, but persistently low inflation and slowness in the global economy dictate a cautious approach with rate adjustments. The last increase was a 25 basis point boost to 2.5% in December that sparked a widespread selloff in equities and commodities.

The central bank also downgraded its projections of U.S. gross domestic product growth in 2019 to 2.1% from its December estimate of 2.3%. Following the FOMC meeting, the U.S. dollar plunged to a seven-week low, while firming 0.3% in midmorning index trading to 96.22.

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