Oil Futures Slip on Demand Concerns

WASHINGTON (DTN) -- New York Mercantile Exchange nearest delivered oil futures and the Brent contract on the Intercontinental Exchange settled Thursday's session fractionally lower on demand concerns, although recovering most of their earlier losses that were sparked by U.S. President Donald Trump's call for Organization of the Petroleum Exporting Countries to lift oil production.

NYMEX May West Texas Intermediate futures settled $0.11 lower at $59.30 per barrel (bbl), while ICE May Brent edged $0.01 down to settle at $67.82 bbl ahead of contract expiration at Friday's close. NYMEX April ULSD futures dipped 0.86 cent to settle at $1.9720 gallon. NYMEX April RBOB futures extended losses from the previous session to settle down 1.56 cents at $1.8799 gallon, retreating from a better-than-five-month high posted earlier in the week. NYMEX April products are set to expire at Friday's close.

Thursday morning, Trump once again called on OPEC to boost output, citing rising oil prices. "Very important that OPEC increase the flow of oil. World markets are fragile & oil is getting too high," Trump tweeted.

Under the OPEC+ agreement, oil production from the 14-member group in February reached a four-year low, down 300,000 barrels per day (bpd) from the prior month to 30.06 million bpd. According to OPEC data, the compliance rate with the accord was 86% for the profiled month, with Saudi Arabia, United Arab Emirates and Kuwait cutting deeper than originally pledged.

In contrast, compliance by non-OPEC participants was only 25%, with Russia, the second-largest oil producer within the accord, has lagged behind its pledged quota for the first two months into the deal. Russian oil output was 11.34 million bpd in February, down 75,000 bpd, while still missing the accord target.

In a recent interview, Russian Energy Minister Alexander Novak said the country would reach its pledged production cut of 228,000 bpd from October's output rate by the end of this month, boosting its compliance rate under the OPEC+ agreement. According to Reuters, Moscow is unlikely to agree to an extension of the six-month agreement beyond June, as it is under internal pressure to lift the production cap.

On the economic front, Department of Commerce downgraded the growth in U.S. fourth quarter gross domestic product to 2.2%, a steep 1.2% decline against the third quarter. Federal data revised lower consumer, local and state government spending, along with corporate profits for the final quarter of last year. On March 20th, the Federal Reserve released projections for 2.1% growth in 2019 and 1.9% in 2020, revised down 0.2% and 0.1%, respectively, from the central bank's outlook in December.

The key uncertainty for the U.S. economy remains the unresolved trade dispute with China, the second largest economy in the world. In November, the Trump administration slapped 25% tariffs on $250 billion worth of Chinese products, demanding revision of six key trade areas, including forced technology transfer and intellectual property rights. According to the latest Reuters report, China offered unprecedented concessions on several fronts in an attempt to reach a trade deal. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin arrived in Beijing on Thursday for a new round of talks, which will be followed by a round in Washington next week.

Following the latest signs of progress in U.S.-China trade talks, U.S. equities gained 71.14 points to close at 25,696.73, while S&P 500 Index gained 0.31% on the session. U.S. dollar advanced 0.5% to a 96.764, two-week high, with the dollar having an inverse relationship with WTI futures.

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