Oil Futures Rebound Amid Easing Fears

WASHINGTON (DTN) -- Fading from intra-session highs, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled higher Wednesday amid cautious optimism the newly developed vaccine would halt the spread of a novel coronavirus outbreak in China that has weighed on the short-term demand outlook for fuels.

On the economic data front, the Institute of Supply Management reported its non-manufacturing PMI reading for January beat market consensus at 55.5 after printing 54.9 in December. That followed a bullish jobs report from the private payroll provider ADP, detailing employment growth in the United States soared 291,000 last month -- the largest monthly gain in nearly five years.

In response to the bullish readings, the U.S. dollar spiked to a two-month index high 98.20 against the basket of foreign currencies, while also weighing on the West Texas Intermediate futures in late afternoon trade.

In market-on-close trade, NYMEX March WTI futures settled $1.14 higher at $50.75 barrel (bbl) after breaking above $51.50 bbl in intra-session trade. The ICE April Brent contract rallied $1.32 to settle at $55.28 bbl, up more than 2.6%. NYMEX March RBOB futures advanced 4.31 cents to settle at $1.4863 gallon after the Energy Information Administration reported a 90,976 bbl draw from domestic gasoline stocks as demand for motor fuel continued higher, up 140,000 barrels per day (bpd) in the final week of January. The front-month ULSD contract surged 6.15 cents to a $1.6454 gallon settlement after EIA reported distillate stocks were drawn down a third consecutive week, dropping 1.5 million bbl last week.

Oil futures snapped their losing streak on Wednesday after two separate research teams claimed to have developed a breakthrough vaccine against a new strain of Cov-n2019 virus in China. The World Health Organization, however, quickly downplayed the reports and said there were "no known effective therapeutics" against the disease. Still, global equities and oil prices rallied at midweek amid emerging hopes that the critical vaccine could be just around the corner, easing fears of a looming global pandemic.

The Organization of Petroleum Exporting Countries concluded their two-day technical meeting on Wednesday short of announcing further cuts to an existing 1.7 million bpd production agreement. Wire services suggested Russia was holding up a decision by OPEC and its allies to take action over an emerging gap in China's crude demand. Despite agreed cuts, Russia's crude output increased 2,000 bpd in January to 11.28 million bpd, indicating continued struggles by Russian oil companies to reduce production rates in the winter season. According to sources, Saudi Arabia continues to seek a preliminary meeting among producers on Feb. 14-15, prior to OPEC's official meeting in March.

Oil prices remained on the offensive in midmorning trade after EIA's weekly inventory report showed U.S. commercial crude stocks expanded by 3.4 million bbl last week, far exceeding market expectations for a 2.6 million bbl build. Domestic crude supplies are currently about 2% below the five-year average. At the key Cushing supply depot in Oklahoma, the delivery location for the New York Mercantile Exchange West Texas Intermediate futures contract, crude stocks held higher for a second week, up 1.068 million bbl to 36.708 million bbl. The hefty build occurred even as domestic refiners increased crude throughputs by 48,000 bpd to 15.972 million bbl, a 0.2% uptick in refinery run rates.

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

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