WTI Falls to 6-Week Low on Supply Data

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange fell Wednesday on demand concerns amid growing product supply in the United States after government data again detailed large week-over-week builds in both gasoline and distillate inventories.

Futures contracts managed to pare some of the mid-session losses after the U.S. and China consummated a historic "phase-one" trade deal, freezing a 20-month trade war that have dented global economic growth and fuel demand.

Energy Information Administration data released midmorning Wednesday showed total commercial petroleum supplies increased by 14.9 million barrels (bbl) in the week ended Jan. 10 last week, with 8.2 million bbl of that increase in distillate fuel inventories, pressuring the front-month ULSD contract to an eight-week spot low $1.8779 settlement.

EIA reported gasoline inventories expanded by 6.7 million bbl to a near-one-year high of 258.827 million bbl, nearly 5% above the five-year average. Weighed down by building stockpiles, NYMEX RBOB February futures ended the session down 1.76 cents at $1.6368 a gallon, a fresh five-week low on spot continuous prices chart.

NYMEX February West Texas Intermediate futures dropped $0.42 to a $57.81 per bbl settlement, and ICE March Brent futures declined $0.49 to settle at $64 per bbl, the lowest spot settlement since mid-December.

Wednesday's lower settlements came on the heels of the breakthrough "phase-one" trade agreement between the U.S. and China that sets the terms for removal of some tariffs, increases Beijing's purchases of American products and reforms the laws around intellectual property.

"Today we take a momentous step, one that has never been taken before with China, toward a future of fair and reciprocal trade as we sign Phase One of the historic trade deal between the United States and China," President Donald Trump said.

According to the text of the agreement, tariffs will remain on approximately $360 billion of yearly Chinese exports to the U.S. President Trump said these levies will all be removed when a phase-two deal is completed, and he doesn't expect a third part of the deal.

Citing an improved macro-economic outlook, the Organization of Petroleum Exporting Countries revised higher its outlook for 2020 global oil consumption by 140,000 barrels per day (bpd) for a year-on-year growth of 1.22 million bpd in their Monthly Oil Market Report released Wednesday.

OPEC's economists raised global economic growth forecast to 3.1% for the current year, 0.1% higher than 2019.

On the supply side, the group lifted estimates for non-OPEC production by 40,000 bpd to 64.34 million bpd for an annual growth of 1.86 million bpd, led again by upward revisions in the U.S. shale production. OPEC also see sizable production gains this year in Norway, Mexico and Guyana.

Meanwhile, production from the 13-member cartel declined 161,000 bpd in December to 29.444 million bpd, with Saudi Arabia again driving most of that drop. OPEC's de-facto leader trimmed its output by 111,000 bpd last month to 9.762 million bpd, followed by a 76,000 bpd decline in Iraq's production, and the United Arab Emirates curbed its production by 46,000 bpd to 3.062 million bpd.

In Libya, where the civil conflict between the warring factions escalated last month, production declined 44,000 bpd to 1.139 million bpd. Nigeria -- the largest crude producer in Africa -- drove its output down by 24,000 bpd to 1.77 million bpd in December.

On Tuesday, EIA said the 13-member cartel will likely limit its output through 2021 to keep the markets in relative balance against surging supply from the U.S. The agency forecasts OPEC output will average 29.2 million bpd this year, down 600,000 bpd from 2019 while seen edging up 100,000 bpd in 2021.

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

(CZ)

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