Oil Futures Rally in Short Holiday Week

CRANBURY, N.J. (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange ended shallowly mixed Friday, fading from fresh 3-1/2-month intraday highs and a bump higher by a bullish set of supply data released late morning, and registered sizable gains during the truncated week amid bullish market sentiment spurred by the U.S.-China trade deal.

A steep drop in the U.S. dollar to a 96.535 better-than-five-month low in index trading also lent support, with the dollar weakness following this month's Federal Open Market Committee meeting in which central bank officials indicated low interest rates will prevail for 2020.

NYMEX February West Texas Intermediate futures settled up $0.04 at $61.72 per barrel (bbl), the highest settlement on the spot continuous chart since Sept. 16 and gained $1.28, or 2.1%, on the week. ICE Brent crude futures outpaced the advance by the U.S. crude benchmark, with the February contract up $0.24 at $68.16 per bbl, also the highest spot settlement since mid-September, in front of the contract's expiration Monday afternoon. February Brent futures rallied $2.02, or 3.1%, this week and holds a $1.29 premium to the March contract.

Brent has consistently widened its premium to WTI futures since Dec. 17, ending at a $6.44-per-bbl fresh four-week high. The widening premium comes ahead of deeper production cuts by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producers aligned with the cartel set to take effect Jan. 1. On Dec. 6, OPEC+ agreed to deepen their production cuts 500,000 barrels per day (bpd) to 1.7 million bpd for the first quarter 2020, with Saudi Arabia volunteering another 400,000 bpd reduction for total production cuts of 2.1 million bpd.

WTI futures were bolstered by a 5.5-million-bbl decline in domestic commercial crude supply to 441.4 million bbl during the week ended Dec. 20 that erased a 5.4-million-bbl surplus against year ago. Included in the draw, Cushing supply fell 2.4 million bbl to a 37.8-million-bbl 13-month low as refiners ramped up output. At 48.8%, last week was only the second week in 2019 in which utilization at the Cushing hub, the underlying delivery location for the WTI futures contract, fell below 50%.

Driving the crude draw was a 2.7% jump in the U.S. refinery run rate to 93.3% of capacity with refiners processing 418,000 bpd, or 2.5%, more crude oil on the week at 16.98 million bpd, the most since the first week of September. It was the first week since the middle of November U.S. refinery crude inputs topped the five-year average.

Despite the sharp increase in refinery runs, total commercial oil stocks were drawn down 10.2 million bbl to 1.27 billion bbl, including an unexpected 200,000 bbl draw in distillate fuel inventory to 124.9 million bbl. Gasoline inventory increased 2 million bbl to 239.3 million bbl last week.

Underlying the data were bullish export statistics, with U.S. petroleum product exports at 5.729 million bpd for a net import rate at -3.82 million bpd, the lowest in 2019. The combined crude and products export rate reached the second-highest weekly rate of the year at 9.126 million bpd during the third week of December.

NYMEX January ULSD futures did get a bump higher from the data but settled down 25 points at $2.0496 gallon after reversing from a $2.0648 3-1/2-month high on the spot continuous chart. January ULSD futures expires Tuesday, Dec. 31, with the February contract ending at a 23-point premium to the expiring contract.

NYMEX January RBOB futures settled down 64 points at $1.7473 gallon, having reversed from a $1.7657 gallon 3-1/2-month high on the spot continuous chart, ending at a 26-point premium to February delivery ahead of contract expiration Tuesday afternoon.

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

(CZ)

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