Oil is set to have its first weekly gain in a month

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January 4, 2019 1:04pm NYSE:USO

Oil Prices

From Myra P. Saefong & Rachel Koning Beals: Oil futures were on track Friday to score their first weekly gain in a month as renewed trade talks set for next week between the U.S. and China and upbeat jobs numbers calmed recession worries, helped lift prices toward levels not seen since mid-December.

It’s a “risk-on Friday, with crude oil [markets] taking comfort in OPEC production cuts and next week’s trade talks in China,” said Ole Hansen, commodities analyst at Saxo Bank.

Much-awaited data from the Energy Information Administration, which were released Friday–two days later than usual because of Tuesday’s New Year’s Day holiday–revealed little change to U.S. stockpiles of crude for a second week in a row, though petroleum-product inventories saw hefty climbs.

West Texas Intermediate crude for February delivery CLG9, +1.74% added $1.04, or 2.2%, at $48.13 a barrel on the New York Mercantile Exchange. It traded at $48.98 before the supply data. The front-month contract was up about 6.2% for the week, according to FactSet data. Front-month WTI crude futures, however, had dropped by 24.8% in 2018, according to Dow Jones Market Data.

The global benchmark, March Brent crude UK:LCOG9 added $1.11, or 2%, to $57.07 a barrel on ICE Futures Europe–with the contract trading up about 7.3% for the week. The international benchmark finished last year with a loss of 19.5%.

Weekly gains for both benchmarks would follow three consecutive weeks of losses, FactSet data show. The benchmarks had also climbed Thursday as separate surveys showed December crude output from major producers saw their biggest monthly declines since January 2017. Supply factors play out against a demand backdrop that’s been shaped by financial market volatility and its knockoff effect on oil demand, as well as signs of economic slowing for major energy consumer China.

Markets Friday saw a positive reaction to news that China’s Commerce Ministry, in a statement, confirmed that a delegation of U.S. trade officials would meet with their Chinese counterparts Monday and Tuesday, news reports said, marking the first time the two sides have met since President Donald Trump and Chinese leader Xi Jinping agreed to a 90-day trade truce last month.

Sentiment also scored a boost after China’s central bank on Friday cut the ratio of cash that banks must hold as reserves by 100 basis points, or 1%, according to news reports — a move that’s seen as a means to help reduce the risk of a sharper slowdown in the world’s second-largest economy.

Meanwhile, data from the EIA released Friday showed that domestic crude supplies inched up by just 7,000 barrels to stand at 441.4 million barrels for the week ended Dec. 28. The government agency had also reported a modest move for the week ended Dec. 21, which saw crude stocks down 46,000 barrels.

Analysts polled by S&P Global Platts expected to see a fall of 1.3 million barrels in crude supplies in the latest week. Sources said the American Petroleum Institute on Thursday reported a drop of 4.5 million barrels.

Gasoline stockpiles, however, climbed by 6.9 million barrels last week, while distillate stockpiles surged higher by 9.5 million barrels, according to the EIA. The S&P Global Platts survey had shown expectations for supply increases of 1.6 million barrels each for gasoline and distillate inventories.

February gasoline RBG9, +0.08% pared some of its earlier gains to trade up 1.3 cents, or 0.9%, at $1.3736 a gallon on Nymex, while February heating oilHOG9, +1.31% added 2.7 cents, or 1.5% to $1.769 a gallon.

Read: Gasoline prices could jump 35% by May, forecast says

Also see: U.S. oil drillers aren’t producing as much crude as forecast, finds WSJ report

As for prospects for energy demand, worries about a broader economic growth slowdown were quelled in part when Friday morning data showed the U.S. added 312,000 jobs in December. It was a much stronger-than-expected result, and provides potential cover for the Federal Reserve to keep raising interest rates, a factor particularly sensitive for financial markets.

In other Nymex trading, prices for natural gas were up, even after the EIA reported earlier Friday that U.S. supplies of natural gas fell less than expected for the week ended Dec. 28. February natural gas NGG19, +1.77%  gained 1.5% to $2.988 per million British thermal units, though it trades about 9.5% lower week to date.

The EIA said domestic natural-gas stocks in storage declined 20 billion cubic feet last week. That was less than the 42 billion decrease expected by analysts polled by S&P Global Platts, and well below the five-year average fall of 107 billion cubic feet.

The United States Oil Fund LP (USO) was trading at $10.11 per share on Friday afternoon, up $0.16 (+1.61%). Year-to-date, USO has declined -15.82%, versus a -5.21% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 108 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of MarketWatch.

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