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U.S. oil prices end at 2-month high Wednesday on modest crude supply rise, Venezuela turmoil

By Myra P. Saefong / MarketWatch

Petroleumworld 01 30 2019

Oil futures settled higher Wednesday, with weekly domestic crude supplies up less than expected and U.S. sanctions on Venezuela's state-run oil company lifting U.S. benchmark prices to their highest finish in over two months.

The U.S. sanctioned Venezuela's Petróleos de Venezuela SA, or PdVSA, earlier this week, raising the risk of disruptions to global oil supply from the Organization of the Petroleum Exporting Countries member, which is also home to the world's largest oil reserves.

West Texas Intermediate crude for March delivery US:CLG9 gained 92 cents, or 1.7%, to settle at $54.23 a barrel on the New York Mercantile Exchange. Based on the front-month contracts, prices logged their highest finish since Nov. 21, according to FactSet data. Month to date, front-month contracts were up 19%, on pace for the best January performance since at least 1985, according to Dow Jones Market Data.

March Brent crude LCOH9, +0.70%  rose 33 cents, or 0.5%, to $61.65 a barrel on ICE Futures Europe. The contract expires at Thursday's settlement.

The Energy Information Administration reported Wednesday that domestic crude supplies edged up by 900,000 barrels for the week ended Jan. 25. That was smaller than the 3.1 million-barrel rise expected by analysts polled by S&P Global Platts.

The American Petroleum Institute reported on Tuesday a weekly climb of about 1.1 million barrels, but the group also upwardly revised the previous week's total by roughly 1 million barrels.

“A precipitous drop in imports has helped stave off another big build to crude stocks,” said Matt Smith, director of commodity research at ClipperData, referring to the EIA data.

“A whopping drop in imports of over 1 million barrels per day has helped mitigate the impact of a substantive drop in refining activity — down nearly 600,000 bpd — leading to a minor build to crude stocks.”

“This plunge in refining activity, a seasonal trend as we dive into seasonal maintenance, has yielded the first weekly drop in gasoline inventories in nine attempts,” he added.

Gasoline stockpiles fell by 2.2 million barrels last week, while distillate stockpiles were down 1.1 million barrels, according to the EIA. The S&P Global Platts survey had shown expectations for a supply increase of 2.8 million barrels for gasoline, but forecast a fall of 2 million barrels for distillates.

On Nymex, February gasoline RBG9, +3.06%  added 2.3% to $1.382 a gallon and February heating oil HOG9, +0.07%  rose 0.05% to $1.898 a gallon. The contracts expire at Thursday's settlement.

Meanwhile, in Venezuela, “interim president” of Venezuela Juan Guaido, who has U.S. backing, is the biggest challenge to strongman Nicolás Maduro's government in years. Guaido has urged the country's powerful military forces to defect, promising amnesty, as the country strains under an economic crisis and sky-high inflation.

Venezuelan factors play out against the broader OPEC-led production cuts of 1.2 million barrels a day for the first half of the year aimed at rebalancing an oversupplied market. As supply is curbed, the oil market has also been weighing signs of slower global economic growth and the potential for weaker energy consumption especially after the International Monetary Fund last week lowered its economic growth outlook for 2019.

Read: Here's what Venezuela turmoil means for oil prices

“Production in Venezuela is likely to decrease by more than the shortfall in exports to the U.S. of approximately 500,000 barrels per day,” said commodities analysts at Commerzbank, writing in a note. “Other buyers are also likely to be hesitant to do business with PdVSA, the oil company subject to the sanctions.”

What's more, trade tensions between the U.S. and China continue to hang over energy trading, raising expectations for a slowdown in energy demand. China triggered the legal process for the World Trade Organization to hear its challenge to U.S. tariffs imposed on $234 billion of goods, according to a report from Reuters this week .

Still, oil prices are up roughly 27% from the 2018 lows hit in the last week of December.

In other energy trading, March natural gas NGH19, +0.70% fell by 1.7% to $2.854 per million British thermal units. Prices settled at the lowest since September as factors tied to the extreme cold-weather conditions briefly hitting parts of the U.S. have been generally dismissed by the market.

“Strong production seems to be preventing any meaningful price movement for now,” said Christin Redmond, global commodity analyst at Schneider Electric.

But natural-gas prices “may receive some support when the [U.S.] storage report is released [Thursday], with expectations for a withdrawal of about 200 [billion cubic feet], which is higher than the 5-year average of 150 Bcf,” he said.

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Story by Myra P. Saefong from MarketWatch.

01 30 2019 20:14 GMT

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