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US Crude Rallies 2% on Steep Decline in Domestic Inventories

March 13, 2019 at 18:35 by Andrew Moran

Crude oil futures are rallying as much as 2% midweek, buoyed by a stellar US government report that showed a significant drop in domestic inventories. Oil prices are now eyeing their third consecutive session win as they gain support from lower global production and US sanctions on Iran and Venezuela, some of the biggest crude producers in the world.

April West Texas Intermediate (WTI) crude oil futures advanced $1.11, or 1.95%, to $57.98 per barrel at 17:54 GMT on Wednesday on the New York Mercantile Exchange. Barring a major crash, US crude prices are on track for a big weekly gain of around 3%. Year-to-date, WTI is up nearly 25%.

Brent, the international benchmark for oil prices, is also surging in the middle of the trading week. May Brent crude futures soared $0.67, or 1.00%, to $67.34 a barrel on London’s ICE Futures exchange.

According to the US Energy Information Administration (EIA), domestic supplies tumbled by 3.9 million barrels for the week ending March 8, beating the market forecast of an increase of 3.3 million barrels. Gasoline inventories fell by 4.6 million barrels, while distillate stockpiles tacked on 400,000. US crude production slipped 100,000 barrels to 12 million barrels per day (bpd).

On Tuesday, the EIA revised its 2019 and 2020 forecasts for production and prices. According to its Short-Term Energy Outlook, US output will average 12.3 million bpd this year, and it will surge to 13.03 million bpd next year. It also predicts that WTI prices will rise by 2.4% to $56.13 a barrel and Brent will edge up 2.9% to $62.78 per barrel.

The US Baker Hughes total oil rig count was 834, down from 843 in the previous week.

A string of factors is lifting crude on Wednesday. The Organization of the Petroleum-Exporting Countries (OPEC) is still continuing its production cuts, and some reports suggest that leaders want to expand the reductions beyond the April deadline to boost prices. With domestic output falling and US sanctions impacting Caracas and Tehran, it is likely that the global supply glut will slump, potentially bringing a barrel of oil back above the important $60 threshold.

A weaker buck also helped crude as the US dollar slid 0.26% to 96.73. A lower greenback is good for commodities priced in dollars because it makes it more expensive for foreign investors to purchase.

In other energy markets, May natural gas futures added $0.03, or 1.1%, to $2.83 per million British thermal units (btu). April gasoline futures rose $0.04, or 2.2%, to $1.85 a gallon. April heating oil futures edged up $0.005, or 0.25%, to $1.99 per gallon.

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