Oil prices move higher as weekly report show smaller-than-expected increases

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February 6, 2019 12:32pm NYSE:USO

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From Myra P. Saefong: Oil futures turned higher on Wednesday after weekly U.S. government data revealed smaller-than-expected increases in domestic crude and gasoline supplies, but concerns surrounding a potential slowdown in global energy demand continued to limited any price gains.


U.S. benchmark March West Texas Intermediate crude oil US:CLG9 rose 28 cents, or 0.5%, at $53.94 a barrel on the New York Mercantile Exchange. Prices, which settled at a one-week low on Tuesday, were trading at $53.20 before the supply data.

International benchmark April Brent LCOJ9, +1.02% was up 38 cents, or 0.6%, to $62.36 a barrel on ICE Futures Europe, after tapping a low of $61.05.

The Energy Information Administration reported Wednesday that domestic crude supplies rose by 1.3 million barrels for the week ended Feb. 1. That was smaller than the 3.7 million-barrel rise expected by analysts polled by S&P Global Platts. American Petroleum Institute data on Tuesday showed an increase of 2.5 million barrels.

“As we move deeper into [refinery] maintenance season, we have seen a third consecutive build to crude stocks,” said Matt Smith, director of commodity research at ClipperData. But “the build is once again only modest, given stymied imports and strong exports.”

Gasoline stocks, however, “continue to climb higher on the East Coast amid strong imports, resulting in a build on the aggregate despite a drop on the Gulf Coast, while distillate stocks have also eased amid lower refinery activity and higher implied demand,” he said.

Gasoline stockpiles edged up by 500,000 barrels last week, while distillate stockpiles were down 2.3 million barrels, according to the EIA. The S&P Global Platts survey had shown expectations for supply increases of 1.7 million barrels each for gasoline and distillates.

On Nymex, March gasoline RBH9, +1.54%  added 1.3% to $1.444 a gallon, and March heating HOH9, +0.90%  climbed by 0.6% to $1.909 a gallon.

March natural gas NGH19, -0.08% was up 0.2% to $2.666 per million British thermal units.

Oil prices trade higher year to date, with WTI front-month contract prices up about 19%. “The political crisis in Venezuela was part of the reason prices were rising in previous weeks, but this seems to have been priced in by now,” said Fawad Razaqzada, market analyst at Forex.com.

“Looking ahead, the 2019 demand outlook for oil is not great, while the prospects of increased shale supply and competition elsewhere could keep the pressure on prices,” he said. In the near term, “demand concerns could keep prices under pressure, with China slowing down and concerns are rising over a recession in Germany,” where data revealed factory orders unexpectedly slumped 1.6% in December.

“That being said, the downside could be limited as the OPEC and 10 partner producers outside the cartel are supposed to be actively managing output in an effort to rebalance the market,” said Razaqzada.

The Organization of the Petroleum Exporting Countries and 10 partner producers outside the cartel agreed late last year to hold back crude output by 1.2 million barrels a day for the first half of 2019, in an effort to soak up that global supply glut and rebalance the market. OPEC, excluding Iran, Libya and Venezuela, agreed to handle 800,000 barrels a day of those cuts.

On Tuesday, The Wall Street Journal reported that OPEC officials said Saudi Arabia and its Persian Gulf allies were looking to create a formal partnership with a 10-nation group led by Russia to manage the world’s oil market. The officials also said those oil-producing nations would debate the proposal during the week of Feb. 18 Vienna, with the potential for a final deal when they meet in April.

“With higher production from non-OPEC producers, especially the U.S., over the last few years, OPEC’s market share has been shrinking,” said James Williams, energy economist at WTRG Economics. A “partnership would control a greater market share and [offer] more control over the market.”

It would also increase “the probability that the participating countries won’t cheat on their share in production cuts,” he said. “The plus side for U.S. producers is that they get the higher price benefit without cutting their own production.”


The United States Oil Fund LP (USO) was trading at $11.35 per share on Wednesday afternoon, up $0.06 (+0.53%). Year-to-date, USO has declined -5.50%, versus a 2.57% 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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