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Oil ends higher Friday, with Venezuela turmoil, OPEC output cuts feeding a weekly gain

By Myra P. Saefong / MarketWatch

Petroleumworld 02 01 2019

Oil futures ended higher Friday, feeding a gain for the week as U.S. sanctions on Venezuela's state-owned oil firm raised the risk of tighter crude supplies and a recent survey showed a considerable monthly decline in OPEC production.

Prices extended their gain after data released Friday showed a weekly decline in the number of active U.S. oil rigs, implying a potential slowdown in domestic production activity. The price move followed a fall in Thursday's session, but U.S. and global benchmark futures managed to finish January with their strongest monthly percentage rise since April 2016.

West Texas Intermediate crude oil for March delivery US:CLG9 rose $1.47, or 2.7%, to settle at $55.26 a barrel on the New York Mercantile Exchange. Prices tracking the front-month contracts logged for their highest finish since Nov. 19, after finishing January with a monthly rise of 18.5%, according to Dow Jones Market Data. For the week, they were up 2.9%.

April Brent LCOJ9, +3.39% gained $1.91, or 3.1%, to $62.75 a barrel on ICE Futures Europe. Prices based on the front-month contracts gained 15% for last month and were 1.8% higher for the week.

Read: Is there a ‘Saudi put' on oil prices? Here's one analyst's agrument

Prices found added support after Baker Hughes BHGE, +4.10%  on Friday reported that the number of active U.S. rigs drilling for oil fell by 15 to 847 this week. That more than offset the increase of 10 in the oil-rig count from a week earlier.

Venezuela, however, remains as a key factor for oil traders. The Trump administration unveiled sanctions on Venezuela's state-owned oil firm Petróleos de Venezuela SA on Monday in an effort to deny the flow of money to President Nicolás Maduro, days after opposition leader Juan Guaidó declared himself interim president of the country. The political turmoil raises the risk of disruption to Venezuela's oil output.

“Traders believe that is one of the factors which is supporting the price and I do not think that the situation is going to be resolved anytime soon because the country is looking to sell some of its gold to buy some breathing room ,” said Naeem Aslam, chief market analyst at ThinkMarkets UK.

“I expect the oil price to continue to grind higher but do not expect any massive rally. It is likely to hit the ceiling at the $56 mark” for WTI, he said.

Read: Here's why the U.S. oil market has little to fear from Venezuela turmoil

Meanwhile, a Reuters survey out Friday showed production from the Organization of the Petroleum Exporting Countries had declined by 890,000 barrels a day in January, to 30.98 million barrels a day, in its largest monthly decline in two years. Traders said the report was factoring into pricing action.

OPEC and 10 producers outside the cartel, led by Russia, agreed in late December to limit crude output by a collective 1.2 million barrels a day for the first half of 2019, part of an effort to rebalance an oversupplied market. Prices have risen roughly 27% from the 2018 lows reached in the last week of December. Demand worries, however, tied largely to a downgrade for global growth from the International Monetary Fund, are factoring into sentiment as well.

Oil-price gains earlier in the week took hold after U.S. crude supplies were reported up less than expected and amid continued reaction to U.S. sanctions on Venezuela's PdVSA. Oil also benefited from the upbeat tone for risk assets overall after a dovish interest-rate repositioning at the Federal Reserve sent all three U.S. stock benchmarks to multiweek highs and sent the U.S. dollar DXY, +0.06% lower.

U.S. stocks traded mostly higher Friday after a surprisingly strong jobs report .

“Oil prices may have had a fairly healthy start to the year in January, particularly with OPEC cuts becoming more visible in the incoming data and with geopolitics again making waves,” analysts at JBC Energy said in a note. But “the Fed's rate increase pause announced earlier this week has added to growing perceptions about shaky economic growth in the U.S. in the months to come.”

Natural gas was the lone decliner among major energy futures Friday, with March natural gas NGH19, -2.88% down 2.8% at $2.734 per million British thermal units. Front-mont contract prices suffered their lowest finish since July, after ending last month with a loss of 4.3%. For the week, they marked a loss of 11%.

Read: Why prices of a popular heating fuel are falling despite the Midwest's coldest weather in 20 years

Read: Here's how investors can take advantage of ‘opportunity' in natural gas

The Energy Information Administration reported Thursday that domestic supplies of natural gas fell by 173 billion cubic feet for the week ended Jan. 25 — smaller than the decline of 197 billion expected by analysts polled by S&P Global Platts.

March gasoline US:RBG9  rose 4.3% to $1.437 gallon, with front-month contract prices up 3% for last month, and March heating oil US:HOG9  added 1.9% to $1.913 a gallon, after a January rise of nearly 12% for front-month contracts.


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Story by Myra P. Saefong from MarketWatch.

02 01 2019 20:58 GMT

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