Crude Futures Up on USMCA, China Deal

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange firmed Thursday as markets rode a fresh wave of trade optimism after the U.S. Senate passed a new North American trade deal a day after Washington and Beijing ratified a formal agreement to freeze a 20-month tariff war. ULSD futures were the exception, fading to a new low under pressure from weak demand and building stocks.

At settlement, NYMEX February West Texas Intermediate futures added $0.71 to $58.52 per barrel (bbl), reversing off Wednesday's $57.36 per bbl six-week spot low, and ICE March Brent futures advanced $0.62 to end the session at $64.62 per bbl. The NYMEX February RBOB contract gained 1.8 cents to a $1.6548 per gallon settlement, reversing off a $1.6262 five-week spot low.

In contrast, front-month ULSD futures dropped to a 4 1/2-month spot low settlement at $1.86 gallon, down 1.79 cents following Wednesday's reported 8.2-million-bbl build in U.S. distillate stocks last week.

Oil markets continue to be roiled by Wednesday's Energy Information Administration report that showed U.S. commercial crude oil and refined products inventories increased by an eye-popping 14.5 million bbl during the week of Jan. 10 after building by 14.8 million bbl during the previous week, exacerbating concerns over a looming supply glut amid slack demand in the world's largest economy.

Crude futures halted the decline and reversed higher Thursday after the U.S. Senate overwhelmingly passed the U.S.-Mexico-Canada Agreement, sending the trade agreement to U.S. President Donald Trump for his signature, with the accord seen boosting trade flows between the neighboring countries. Canada and Mexico remained the largest recipients of U.S. energy products in 2018 and 2019.

Energy trade accounted for 12% of the value for all U.S. exports to Mexico and 5% of all U.S. imports from Mexico in 2018, according to EIA. Canada is the second-largest importer of energy from the United States behind Mexico.

Congressional approval of USMCA follows a historic phase-one trade agreement between the United States and China ratified Wednesday. The deal is set to boost Beijing's purchases of U.S. products that includes $50 billion in energy shipments, as both countries move to the second stage of negotiations. Trump said his administration began talks on a phase-two trade agreement with China Thursday.

"We are now in a great position for a Phase Two start," Trump tweeted.

Oil futures were also lent support from a neutral-to-positive forecast from Paris-based International Energy Agency released Thursday morning that held its global oil-demand growth forecasts for 2019 and 2020 unchanged at 1 million and 1.2 million barrels per day. After several reductions to its demand growth outlook in 2019, Paris-based agency sent a signal that improved macroeconomics may have pulled sagging oil demand out of the rabbit hole this year, with global economic growth expected to climb to 3.4%.

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

(BAS)

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