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Crude Oil Rallies Despite Bigger-Than-Expected Supply Increase

February 13, 2019 at 18:03 by Andrew Moran

Crude oil futures are rallying midweek, despite the US government reporting a larger-than-expected increase in domestic inventories. But oil is holding onto gains on optimism over an incoming US-China trade agreement and reports of decreases in global crude output.

March West Texas Intermediate (WTI) crude oil futures advanced $1.17, or 2.2%, to $54.27 per barrel at 16:27 GMT on Wednesday on the New York Mercantile Exchange. Crude is up an astonishing 17.5% so far this year, a remarkable feat considering that oil was in a bear market to finish 2018.

Brent, the international benchmark for oil prices, is also surging in the middle of the trading week. April Brent crude futures climbed $1.32, or 2.1%, to $63.73 a barrel on London’s ICE Futures exchange. Brent is up nearly 18% year-to-date, erasing all of the losses from over the last 12 months.

According to the US Energy Information Administration (EIA), domestic crude inventories rose by 3.6 million barrels for the week ending February 8. This is larger than the median estimate of 2.7 million barrels. Gasoline supplies jumped 400,000 barrels, while distillate stockpiles increased 1.2 million barrels.

The US Baker Hughes total oil rig count was 854, up from 847 in the previous week.

Global supplies appear to be dominating crude markets on Wednesday. Saudi Arabia promised to slash production levels in the coming months by as much as 500,000 barrels per day (bpd). This comes as the Organization of the Petroleum Exporting Countries (OPEC) announced that crude output slipped by 797,000 bpd last month to average 30.81 million bpd month-on-month.

On Tuesday, the EIA wrote in its monthly report that it anticipates higher US crude production for 2019 and 2020, while forecasting higher WTI prices this year but lower prices in 2020.

Meanwhile, investors are also paying close attention to this week’s meeting between American and Chinese negotiators regarding trade. A US delegation is in Beijing to work out key hurdles that are preventing both sides from reaching a new agreement. But the market is optimistic that new positive developments are going to happen, and President Donald Trump reaffirmed his perspective that a trade deal is coming.

But crude’s gains were capped by a higher US dollar as the greenback edged up 0.38% to 97.07. A stronger buck is bad for commodities priced in dollars because it makes it more expensive for foreign investors to purchase.

In other energy commodities, March natural gas futures shed $0.10, or 3.66%, to $2.58 per million British thermal units (btu). March gasoline futures added $0.04, or 2.82%, to 1.46 a gallon. March heating oil futures edged up $0.03, or 1.7%, to $1.94 per gallon.

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