DTN Oil

WASHINGTON (DTN) -- Following an explosive rally prior session, oil futures nearest delivery on the New York Mercantile Exchange and Intercontinental Exchange were narrowly mixed early Wednesday, with front-month West Texas Intermediate straddling $50 per barrel (bbl) while the Brent contract breached $54 bbl after Saudi Arabia on Tuesday pledged to unilaterally cut an additional 1 million bpd of oil production while the Organization of the Petroleum Exporting Countries and Russia-led producers agreed to minimal output increases for February and March.

WTI futures were also lent support from inventory data released late Tuesday from the American Petroleum Institute that showed domestic crude oil stockpiles fell for the fourth straight week through Jan. 1.

U.S. commercial crude oil stocks dropped 1.663 million bbl in the final week of 2020, according to the API figures, mostly matching analyst expectations. Gasoline and distillate inventories, however, posted large builds that surpassed the consensus. Gasoline stockpiles jumped 5.473 million bbl and distillate inventories surged 7.136 million bbl during the week. Oil traders now await official statistics from the U.S. Energy Information Administration due out 10:30 a.m. ET.

In early morning trade, NYMEX February WTI futures eased from a $50.59 high to trade at $49.80 bbl at last look, and the international Brent crude benchmark for March delivery were slightly higher $53.65, paring an advance to $54.63 bbl. Both crude contacts surged 5% on Tuesday.

NYMEX February ULSD contract were down 0.6 cents near $1.5125 after trading at a $1.5387 high overnight, and February RBOB futures eased to $1.45 gallon after trading at a $1.4681 high.

U.S. equity futures posted mixed results heading into the start of the trading session, with contracts tied to Dow Jones Industrials moving higher and the NASDAQ Composite Index positioning for a drop after television networks called Democrat Raphael Warnock the winner in a U.S. Senate runoff in Georgia, while Democratic challenger Jon Ossoff is slightly ahead of Republican David Perdue with over 98% vote reported.

Markets are positioning for the likelihood of both candidates winning, which would tip the balance of power in Washington towards President-elect Joe Biden. Later Wednesday afternoon, Congress is also set to certify the November election win for Biden, although Republicans in the House and Senate are expected to challenge the certification of three states.

Both crude contacts surged to 11-month highs on Tuesday after OPEC+ reached a deal on production quotas through the end of March, leaving most targets unchanged at January levels, while Saudi Arabia pledged to cut additional 1 million barrels per day (bpd) in output. Collectively, the group will now reduce output by more than 8 million bpd in February and March, up from 7.2 million bpd in January.

"It is a great New Year present for the whole oil industry," said Russian Deputy Prime Minister Alexander Novak following the conclusion of the two-day meeting.

"Despite this bullish supply agreement, we believe Saudi's decision likely reflects signs of weakening demand as lockdowns return," analysts from Goldman Sachs said in a note, although the investment bank maintained its year-end 2021 forecast for Brent of $65 bbl.

The new compromise among the 23-nation alliance will run through the end of March, providing more time for global oil demand to expand as vaccination programs across major economies pick up pace, with OPEC+ to decide April production targets on March 4. Under the agreement, Russia and Kazakhstan will raise oil production by 75,000 bpd in both February and March, lifting Russian output to well over 9 million bpd.

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

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