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Oil prices end sharply higher Wednesday as U.S. supplies drop by nearly 9 million barrels

By Myra P. Saefong / MarketWatch

Petroleumworld 02 27 2019

Oil futures rose Wednesday after Saudi Arabia affirmed its commitment to reducing output, then got an added boost after data revealed an unexpected weekly drop in U.S. crude supplies — the first decline in six weeks.

April West Texas Intermediate crude CLJ9, +0.07% rose $1.44, or 2.6%, to settle at $56.94 a barrel on the New York Mercantile Exchange. That was the biggest one-day dollar and percentage increase since Feb. 1, according to Dow Jones Market Data. Global benchmark April Brent LCOJ9, +1.56% which expires at Thursday's settlement, rose $1.18, or 1.8%, to $66.39 a barrel on ICE Futures Europe.

The Energy Information Administration on Wednesday reported that U.S. crude supplies unexpectedly dropped by 8.6 million barrels. The decline followed five straight weeks of increases and defied most market forecasts. Informa Economics projected a rise of 3.5 million barrels.The American Petroleum Institute data on Tuesday showed a decline of 4.2 million barrels.

“A tick higher in refinery runs, strong exports and a whopping drop in imports has led to a sizable crude draw,” said Matt Smith, director of commodity research at ClipperData. “Refinery runs are now back above year-ago levels, while domestic production has ticked higher again, now at 12.1 million barrels per day.”

Supplies of gasoline fell by 1.9 million barrels, while distillates edged down by 300,000 barrels last week, according to the EIA. Informa Economics had expected supply declines of 1.5 million barrels for gasoline and 2.5 million barrels for distillates, which include heating oil.

On Nymex, March gasoline RBH9, +2.87%  rose 3% to $1.634 a gallon and March heating HOH9, +1.35%  tacked on 1.2% to $2.022 a gallon.

“Although we saw the large draw this week [for crude supplies], time will tell if they continue and we will have to watch closely how U.S. production continues to increase, which could offset the aggressive Saudi cuts,” said Tariq Zahir, managing member at Tyche Capital Advisors.

Crude prices were already moving up earlier as the energy minister of Saudi Arabia, Khalid Al-Falih, reiterated his country's commitment to cutting output to rebalance the market. Saudi Arabia is viewed as the de facto leader of the Organization of the Petroleum Exporting Countries because it is the biggest producer of the oil cartel and holds the most political sway in the group.

Saudi's minister also implied that production cuts could be extended into the second half of 2019.

OPEC and 10 producers outside the cartel, led by Russia, agreed late last year to hold back crude output by a collective 1.2 million barrels a day for the first six months of the year. Saudi Arabia has shouldered the largest burden of those cuts, coming down by around 350,000 barrels a day last month, according to OPEC.

Read: What oil-tanker rates can tell readers about OPEC members' compliance with cuts

Robert Yawger, director of energy at Mizuho Securities USA LLC, said that Saudi's declaration of a commitment to output cuts could elicit Trump's ire. “Also, Saudi Oil Minister Al-Falih said he expected to extend oil production cuts into the second half of 2019, a view that will likely draw the wrath of President Trump,” he wrote in a Wednesday research report.

On Monday, crude markets tumbled on the heels of comments from President Donald Trump, who said via a tweet that “oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile.”

In the short term, talks surrounding a U.S.-China trade deal, congressional testimony by ex-lawyer Michael Cohen against the president, and the recent India-Pakistan fighting “all could have a impact on [market] risk,” said Zahir.

Rounding out action in the energy market, April natural gas NGJ19, +0.36% on its first full session as a front-month contract, settled at $2.799 per million British thermal units, up 0.1%. The EIA will release its weekly report on U.S. natural-gas supplies on Thursday.

Christopher Alessi contributed to this article.


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Story by Myra P. Saefong from MarketWatch.

02 26 2019 20:15 GMT

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