Oil Futures Higher on Slowing US Output

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled higher on Wednesday, as U.S. crude inventory increased less than the market expected. Crude production declined a second straight week, according to Energy Information Administration supply data.

Nymex June West Texas Intermediate futures settled $0.24 higher at $62.02 bbl, while ICE July Brent was up $0.53 to settle at $71.77 bbl. Nymex June RBOB futures surged 3.6cts to finish Wednesday's session at $2.0127 gallon, and June ULSD futures advanced 2.74cts to $2.0863 gallon.

Oil futures shifted higher after government data showed U.S. crude production dropped 100,000 bpd last week to 12.1 million bpd, reversing down from a record high of 12.3 million bpd in late April. The fall in output aligns with fewer operating rigs in the United States reported by Baker Hughes, which showed the U.S. oil rig count at a 13-1/2 month low of 805 as of May 10.

Markets seemed to shrug off a 5.4 million bbl build in U.S. commercial crude inventories, which was less than 8.6 million bbl increase reported by American Petroleum Institute late Tuesday. EIA data also showed a sizable 1.8 million bbl drawdown from the Strategic Petroleum Reserves, while U.S. crude exports jumped 1.025 million bpd to 3.347 million bpd, an eight-week high.

In refined products, gasoline inventory dropped an unexpected 1.1 million bbl to 225 million bbl, a six-month low, while distillate fuel inventories rose for the first time in nine weeks, moving off a 19-week low with an increase of 84,000 bbl to 125.647 million bbl.

International Energy Agency also sees U.S. crude production growth slowing this year, down to 1.7 million bpd from a record year-on-year increase of 2.2 million in 2018. In its monthly Oil Market Report, the Paris-based agency said U.S. production is still expanding, albeit at a slower pace due to "recovery in fracking activity in early 2019 [that] should support higher output in the second half of the year." IEA revised non-OPEC supply higher for the current year to 1.9 million bpd, versus a growth rate of 2.8 million bpd last year.

Oil futures upside was limited on Wednesday by bearish economic figures from China and the United States, showing an unexpected slowdown in both economies amid the ongoing tariff war. According to National Bureau of Statistics, China's gross domestic product fell 3.1% in April to 5.4%, pulled down by the sharp slowdown in manufacturing sector. U.S. industrial production also dropped, albeit at slower rate, down 0.5% after a 0.2% gain in March.

Disappointing data suggest both economies lost momentum ahead of the latest round of tariffs, which started with U.S. raising levies on $200 billion in China goods. The latest round of tariffs announced by U.S. President Donald Trump and China President Xi Jinping raised the stakes and potential economic hit for both economies.

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