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Oil prices at 4-month highs Wednesday as supplies post a weekly drop of nearly 10 million barrels

Por Myra P. Saefon / Marketwatch

Petroleumworld 03 20 2019

Oil prices climbed Wednesday to settle at their highest in four months after U.S. government data revealed a nearly 10 million-barrel weekly drop in domestic crude inventories, along with hefty declines in both gasoline and distillate stockpiles.

Prices were already trading broadly higher week to date, buoyed by expectations that the Organization of the Petroleum Exporting Countries and its allies will continue to support their production cut agreement, at least through June.

Broader financial market attention, meanwhile, was on the Federal Reserve, which concluded a two-day policy meeting Wednesday. The central bank signaled no more increase in interest rates this year and just one in 2020, according to its new ‘dot plot' . The dollar DXY, -0.05%  turned lower following the announcement, giving dollar-denominated oil prices an additional boost.

“The market shrugged off any potential concerns over the slight downgrade to [the Fed's] economic forecast and focused on the dovish stance—with rate hikes unlikely until next year and a conclusion to quantitative tightening in September,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.

April West Texas Intermediate crude CLJ9, +1.85%  rose 80 cents, or 1.4%, to end at $59.83 on the New York Mercantile Exchange after touching a high of $60.12. The intraday high and settlement levels for the contract, which expired at the day's settlement, were the highest seen since November. May WTI CLK9, -0.23% which is now the front month, settled at $60.23, up 94 cents, or 1.6%.

May Brent crude LCOK9, -0.15% added 89 cents, or 1.3%, to $68.50 a barrel on ICE Futures Europe, with prices based on the front-month contract finishing at their highest since November.

The Energy Information Administration on Wednesday reported that U.S. crude supplies fell by 9.6 million barrels for the week ended March 15. Analysts polled by S&P Global Platts expected a climb of 1 million barrels. The American Petroleum Institute on Tuesday had reported a fall of 2.1 million barrels, according to sources.

“Two thirds of the big drop in crude stocks was due to higher exports,” James Williams, energy economist at WTRG Economics, told MarketWatch. At 3.392 million barrels a day, it is the second highest on record, he said. “Also, refinery utilization was up 1.3% and usually it is still declining at this time of year” because of seasonal refinery maintenance.

Supplies of gasoline also dropped by 4.6 million barrels, while distillates fell by 4.1 million barrels last week, according to the EIA. The S&P Global Platts survey had shown expectations for supply declines of 2.1 million barrels each for gasoline and distillates.

On Nymex, April gasoline RBJ9, -0.40% climbed by 1.2% to $1.917 a gallon, while April heating oil HOJ9, -0.17%  added 0.9% to $2.008 a gallon.

April natural gas NGJ19, +0.60%  settled at $2.82 per million British thermal units, down 1.9%, ahead of the EIA's weekly update on supplies of the fuel due Thursday.

Overall, oil prices are “supported by ongoing supply cuts led by OPEC+ and U.S. sanctions against Iran and Venezuela, although gains remain capped by market concerns over economic growth,” said Dean Popplewell, an analyst with Oanda.

At a meeting earlier this week, the OPEC/non-OPEC Joint Ministerial Monitoring Committee, a production policy monitoring group that includes Saudi Arabia and Russia, said that “overall conformity” with the production cut agreement that began at the start of the year rose to almost 90% in February, up from 83% in January. OPEC members had agreed to trim 800,000 barrels a day from October's production levels for six months through June of this year, with Russia and other allied producers cutting another 400,000 barrels a day to total 1.2 million barrels in cuts.

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