Crude Oil Up for the Week

Both the WTI and Brent have hit levels not seen in several weeks.

Bullish factors tied to political instability in Venezuela and curbs on production by OPEC members spurred on West Texas Intermediate (WTI) and Brent crude oil futures Friday.

The March WTI contract gained $1.47 Friday, settling at $55.26 per barrel. The benchmark traded within a range from $53.37 to $55.66. Against the Jan. 25 settlement price, the WTI is up 2.9 percent for the week.

Brent crude oil for April delivery rose by $1.91 to end the day at $62.75. For the week, the Brent is up 1.8 percent.

“After several range-bound trading days, WTI and Brent both moved higher to levels not seen in about six weeks, largely on ‘bullish’ fundamentals,” said Tom Seng, Assistant Professor of Energy Business with the Collins College of Business at the University of Tulsa. “Concerns over the volatile situation in Venezuela continued into this week as several nations chose sides in the political struggle there. The Trump administration this week officially placed a ban in the importation of oil from PDVSA which amounts to about 500,000 barrels per day (bpd).”

Seng also noted that crude oil has also received support from OPEC’s ongoing decrease in output, with January production down by approximately 890,000 bpd, as well as a weaker U.S. dollar mid-week. He added that a stronger dollar Friday failed to curb the momentum.

This week’s Weekly Petroleum Status Report from the U.S. Energy Information Administration (EIA) also buoyed oil bulls, said Seng. It “showed an increase of commercial oil inventories of just 0.9 million barrels, far below both analysts’ forecasts and the American Petroleum Institute which predicted an addition of over 2 million barrels,” he said. “Total crude inventory now stands at seven percent above the five-year average.”

Seng pointed out that the EIA report also revealed:

• A 2.8-percent drop in refinery utilization to 90.1 percent, which he described as “perhaps the only bearish sign in the report”
• Steady U.S. oil production at its record-high 11.9 million bpd for the third week straight

“Going forward, concerns about slowing global economic growth and the U.S.-China trade situation will persist,” continued Seng. “Baker-Hughes reported today that the number of rigs in the U.S. drilling for oil dropped by 15 last week since the lowest level since back in May.”

On a technical level, the March WTI/NYMEX futures contract is trading above its five- and 10-day moving averages and well above its 20-day moving average, Seng added.

“Indicators show it to be somewhat ‘overbought’ currently,” explained Seng. “Volume has been strong with over 700,000 contracts traded the last two days and over 500,000 today.”

The price of a gallon of reformulated gasoline (RBOB) also increased Friday. The March RBOB contract ended the day at $1.44, reflecting a six-cent increase for the day. Week-on-week, RBOB is up more than three percent.

“Unleaded gasoline moved higher this week as well on the heels of the move in crude,” said Seng. “Refinery utilization continues to decline, which could be bullish for gasoline while – at the same time – bearish for oil demand.”

Henry Hub natural gas for March delivery fell for the third consecutive day Friday, shedding eight cents to settle at $2.73. For the week, gas is down approximately 14 percent. Despite recent frigid weather throughout much of the northern tier of the United States, Seng remarked that the gas futures market appears to have deemed the polar vortex-induced conditions a “non-event.”

“Despite a large withdrawal reported for last week and record low temperatures throughout the Upper Midwest and Northeast U.S. this week, natural gas prices fell each day on the NYMEX,” said Seng.

In addition, Seng pointed out that the latest EIA Weekly Natural Gas Storage Report showed a withdrawal last week of 173 billion cubic feet (Bcf) – below the consensus forecast of 191 Bcf.

“While this could be seen as bearish – that is, less gas withdrawn than expected – the report covered activity through last Friday, ahead of the worst cold of the polar vortex,” Seng explained. “Next week’s report will reflect demand for stored gas as a result of that storm. Some states even encouraged residents to lower their thermostats to conserve natural gas in the grid.”

Other noteworthy gas market figures, relayed by Seng, include:

• Total gas in inventory at 2.197 trillion cubic feet (Tcf) – just 0.6 percent higher than a year and 13 percent below the five-year average with several weeks of winter remaining
• 87.6 Bcf per day (Bcfd) of production last week, up from 87.4 Bcfd the prior week
• Demand last week at 122 Bcfd, up from 113.7 Bcfd the week before, with the largest increases coming from the power and commercial/residential sectors.
• Exports to Mexico rose to 4.9 Bcfd while LNG increased to 3.8 Bcfd

“Technically, March natural gas is trading below its five-, ten- and twenty-day moving averages,” Seng concluded. “Overbought/oversold indicators are moving into ‘oversold’ territory. It may soon be time to ‘pay the piper’ for those traders betting against higher natural gas prices.”

SOURCE: RIGZONE.COM