Oil Futures Advance

Oil Futures Advance

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange pushed higher in pre-inventory trade Wednesday, shrugging off industry data detailing builds in U.S. crude and gasoline supply last week, as investors remain optimistic that a slowing number of new coronavirus cases in China would improve the demand outlook in the world's top crude importer.

On Tuesday, American Petroleum Institute reported nationwide crude stocks increased a hefty 6 million barrels (bbl) during the first week of February, far surpassing calls for a 2.8 million bbl build. API data also showed a larger-than-expected 1.1 million bbl build occurred in domestic gasoline stocks, contrary to estimates of a 1.2 million bbl drawdown. Distillate stockpiles slid 2.3 million bbl, missing calls for a decrease of 400,000 bbl.

Traders now await the official inventory report from the U.S. Energy Information Administration due out a.m. EST.

Near 7:30 a.m. AM EST, NYMEX March West Texas Intermediate futures were up $0.74 at $50.68 bbl and ICE April Brent contract rose $1.08 to $55.09 bbl. NYMEX March RBOB futures rallied 4.02 cents to $1.5544 gallon and the front-month ULSD contract advanced 3.22 cents to near $1.6589 gallon.

Crude futures extended gains on Wednesday after Chinese health officials reported the lowest daily number of new coronavirus cases since the last week of January, fueling market optimism that the deadly respiratory disease in the world's second largest economy is slowing. That sentiment was also fueled by comments from China's top government medical adviser, Zhong Nanshan, who reassured the public coronavirus is currently on track to plateau mid-February and to gradually ease in the next two months.

Spurred by hope over the stabilizing health crisis in China, global equities extended their rally on Wednesday, lifting U.S. indexes to a higher open a day after the S&P 500 Index and NASDAQ reached fresh record highs.

Beijing has promised to take measures to soften the blow to China's economy and investors are hopeful other governments will do the same if necessary.

During Congressional testimony Tuesday, U.S. Chairman of the Federal Reserve Jerome Powell reassured the market that the central bank is closely monitoring potential spillovers from China that adversely affect the U.S. economy, adding there were no signs the economic expansion in the United States would end soon.

Despite some uplifting headlines, oil investors remain wary over lost demand in China, concerns that have dented market sentiment for weeks.

In their Monthly Oil Market Report released Wednesday morning, the Organization of the Petroleum Exporting Countries slashed their forecast for global oil demand growth by 230,000 barrels per day (bpd) this year to 990,000 bpd for total oil demand in 2020 at 100.73 million bpd. OPEC said the revision for this year is due to lost oil demand in China and neighboring countries amid the coronavirus but expects the effect due to the outbreak to be limited to the first half of 2020.

China's oil demand in 2020 was revised down 100,000 bpd from month ago to 13.29 million bpd for year-on-year growth of 1.8%, with consumption in the first quarter adjusted 160,000 bpd lower to 12.77 million bpd. For 2019, China's oil demand is estimated to have grown 350,000 bpd, with the consumption rate for December up a sharp 780,000 bpd, "driven by solid transportation fuel demand and petrochemical feedstock," said OPEC.

In its monthly report, OPEC said transportation fuels, especially jet fuel, have powered oil demand growth in China.

"The virus outbreak is likely to have a significant impact on the transportation and industrial sectors. Light distillates, gasoline, middle distillate and residual fuel oil are forecast to decline by around 0.10 mb/d in 2020, with most of the declines happening in 1H20," said OPEC.

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


Liubov Georges