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Oil futures fall Tuesday, with U.S. benchmark settling at a one-week low

By Myra P. Saefong / MarketWatch

Petroleumworld 02 05 2019

Oil futures fell Tuesday, with U.S. benchmark prices settling at their lowest in a week as investors weighed concerns about global energy demand against the price-supportive news from the political crisis in Venezuela.

Production cuts by members of the Organization of the Petroleum Exporting Countries and its allies, including Russia, “continued to add tailwinds from the supply side of the market, while trade fears and concerns of a general slowing of global demand growth look to hold prices lower,” said Robbie Fraser, global commodity analyst at Schneider Electric.

West Texas Intermediate crude oil for March delivery US:CLG9 fell 90 cents, or 1.7%, to settle at $53.66 a barrel on the New York Mercantile Exchange after trading as high as $55.21. Front-month contract prices marked their lowest settlement Tuesday since Jan. 29, according to FactSet data. They saw a recent peak at $55.26 on Friday, which marked a roughly 2½-month high and created a point of chart congestion that prompted some consolidation, traders said.

April Brent LCOJ9, -0.64% shed 53 cents, or 0.9%, to $61.98 a barrel on ICE Futures Europe. It had traded up above $63 early Tuesday.

“With or without any OPEC+ cuts, the market will want to see tangible evidence of a tighter supply/demand balance before shifting the recent price band higher, with U.S. crude stocks still well above the five-year average to start the year,” said Fraser, in a Tuesday note.

“With that in mind, keep an eye on [American Petroleum Institute supply] data later [Tuesday], followed by tomorrow's more definitive [Energy Information Administration] print, where a mixed consensus of expectations leaves room for stronger than anticipated draw to crude stocks to bring in some mid-week price support,” he said.

On average, however, analysts expected the EIA to report a rise of 3.7 million barrels in crude stockpiles for the week ended Feb. 1, according to a survey conducted by S&P Global Platts. They also expect that gasoline and distillate inventories each posted gains of 1.7 million barrels.

OPEC 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 a 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.

As for oil in the shorter term, Fawad Razaqzada, technical analyst at Forex.com, warned of the potential for further losses, “now that the Venezuela news is priced in.”

“The 2019 demand outlook for oil is not great, while the prospects of increased shale supply and competition elsewhere could drive prices further lower,” he said.

The Trump administration unveiled sanctions on Venezuela's state-owned oil firm Petróleos de Venezuela SA late last month in an effort to cut off money to embattled President Nicolás Maduro, days after opposition leader Juan Guaidó declared himself interim president of the country and gained much international support. The political turmoil raises the risk of disruption to Venezuela's oil output. In fact, the U.S. sanctions were already curtailing Venezuelan crude oil exports, pushing the country's beleaguered oil industry closer to collapse, The Wall Street Journal reported Monday .

At the same time, several European Union countries on Monday recognized Guaidó as Venezuela's interim leader. “This means that Europeans are likely to join the U.S. oil sanctions against Venezuela,” analysts at Commerzbank said in a note, a move that could further hinder supply from the South American country. Venezuela is an OPEC member and currently holds the oil cartel's rotational presidency.

Still, some observers have pointed out that the weakened state of its oil industry may have only a limited effect on the wider global crude market.

Elsewhere on Nymex, March gasoline US:RBG9  lost 0.4% to $1.426 a gallon, and March heating oil US:HOG9  declined by 0.5% to $1.898 a gallon. March natural gas NGH19, +1.05% rose less than 0.1% to $2.662 per million British thermal units, following losses in each of the last four sessions .


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Story by Myra P. Saefong from MarketWatch.

02 05 2019 20:29 GMT

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