Oil Futures Rally on US-China Trade

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled higher Wednesday amid reports of fresh progress in U.S.-China trade talks. Both West Texas Intermediate and Brent were supported by a larger-than-expected gasoline draw in U.S. inventories reported by Energy Information Administration.

Oil futures extended gains on Wednesday amid reports that China and the United States have agreed on an enforcement mechanism to ensure compliance with the terms of the trade agreement. Treasury Secretary Steve Mnuchin said this afternoon that both sides settled on "enforcement offices" to monitor any trade violations, indicating two parties are edging closer to reaching a deal. Establishing a viable enforcement mechanism became one of the key sticking points in U.S.-China trade talks, with President Donald Trump suggesting to extend duties if the trade dispute cannot be solved. The nine-month trade war between the world's largest economies has disrupted the supply chain, unsettled financial markets and weighed on the global economy.

On Tuesday, the International Monetary Fund cut its outlook for global growth to the lowest level since the financial crisis, while including a breakdown in U.S.-China trade talks among key risks for global economy.

WTI upside was limited by a large 7.1 million bbl build in U.S. commercial crude oil inventories in the first week of the second quarter, bringing total stocks to 456.6 million bbl, a six-week high. According to EIA, the build was realized as U.S. production remained at a record high level of 12.2 million bpd during the week profiled, while exports declined for a third week due to the partial closure of the Houston Ship Channel.

Against the backdrop of the bearish weekly figures, EIA said in its Short-term Energy Outlook Tuesday U.S. petroleum inventories declined by more than 10 million bbl a week three times in the first quarter, making it one of the largest global inventory withdrawals. EIA data also showed global crude inventories declined by 700,000 bpd in March and 500,000 bpd for the first quarter, which is the first quarterly stock draw since fourth-quarter 2017.

NYMEX May WTI futures settled up $0.63 at $64.61 bbl, while ICE June Brent ended the session up $0.79 at $71.40 bbl, with both WTI and Brent reaching better than five-month spot highs. NYMEX May ULSD futures surged 4.27cts to $2.0876, settling above 200-day moving average after the drawdown in distillate fuel inventories left the stockpiles at 14 weeks low. NYMEX May RBOB futures spiked 7.02cts to settle at $2.0692, reaching better than six-month high today on large 7.7 million bbl gasoline draw. Motor gasoline inventories are at the lowest level since December 7, 2018.

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