UPDATE: Oil books 2.8% gain on signs of compliance with output pact
By Myra P. Saefong, MarketWatch , Jenny W. Hsu
Trump's plans to boost economy may lift energy demand: analysts
Oil futures settled with a gain of nearly 3% Wednesday, buoyed by signs of Saudi compliance with the output cut agreement.
Traders appeared to largely ignore U.S. government data that revealed hefty weekly increases in domestic crude and petroleum-product stocks, along with an increase in oil production. Meanwhile, a news conference held by President-elect Trump--his first since winning the election in November--reinforced the belief that he could be bullish for oil prices.
February West Texas Intermediate crude rose $1.43, or 2.8%, to settle at $52.25 a barrel on the New York Mercantile Exchange. It was trading at $51.35 before the supply figures and climbed back above $52 as Trump spoke at his first press conference (http://blogs.marketwatch.com/capitolreport/2017/01/11/president-elect-donald-trumps-press-conference-live-blog-and-video/) since the U.S. election. March Brent crude on London's ICE Futures exchange advanced $1.46, or 2.7%, to $55.10 a barrel.
If Trump's "presidency results in faster economic growth that is bullish" for oil, said James Williams, energy economist at WTRG Economics. "If you look at some of the greatest upward moves in oil price they are due to economic growth. The rapid growth in the Chinese and other Asian economies was a major contributor to the $100 oil period."
At the same time, however, "if his expected energy policies come to pass, they should result in lower [oil] prices," said Williams. "Fewer regulations and probably more drilling on federal lands should lead to more U.S. production which means lower prices."
U.S. supply data offered a brief distraction for oil traders. The Energy Information Administration reported Wednesday (http://www.marketwatch.com/story/oil-futures-pare-gains-after-eia-reports-larger-than-expected-rise-in-us-crude-supplies-2017-01-11) that domestic crude-oil supplies rose by 4.1 million barrels for the week ended Jan. 6. That was more than twice the 1.5 million-barrel rise reported by the American Petroleum Institute late Tuesday and the 1.75 million-barrel increase expected by analysts polled by S&P Global Platts forecast.
"The seasonal build in U.S. crude oil stocks is largely to be expected and the week ending [Jan. 6] is unlikely to fully capture" the production cuts by members and nonmembers of the Organization of the Petroleum Exporting Countries, which kicked in at the start of the year, said Chris Kettenmann, chief energy strategist at Macro Risk Advisors.
Gasoline supplies also rose by 5 million barrels and distillate stockpiles jumped up by 8.4 million barrels, according to the EIA. The S&P Global Platts survey called for a build of 1.25 million barrels for gasoline stocks and a drawdown of 130,000 for distillates, which include heating oil.
But on Nymex, prices for the petroleum products ended higher along with oil. February heating rose 4.6 cents, or 3%, to $1.593 a gallon and February gasoline added 4.1 cents, or 2.5%, to $1.652 a gallon.
The biggest story from the report is a 190,000 barrel-per-day production rise from the lower 48 states "that pushed total domestic production to 8.946 million barrels per day--its highest point since April 15, 2016, according to Troy Vincent, oil analyst at ClipperData. "This could foreshadow future trouble for OPEC and those wishing to limit global supply."
In a monthly reported issued Tuesday, the EIA raised its 2017 (http://www.marketwatch.com/story/a-2-year-streak-of-us-oil-output-declines-is-likely-over-2017-01-10) domestic production forecast.
Oil prices had posted declines in each of the past two sessions (http://www.marketwatch.com/story/oil-prices-jittery-as-investors-continue-to-fret-about-global-supply-2017-01-10) as doubts that major oil producers will stick to their plan to reduce output with some countries, such as the U.S. and Libya not taking part in the cuts. But prices were higher early Wednesday, supported by "growing confidence in Saudi Arabia and its Gulf neighbors successfully implementing productions cuts," said Enrico Chiorando, an analyst at UK-based Love Energy.
A survey recently released by S&P Global Platts showed (http://www.marketwatch.com/story/opec-oil-output-falls-for-first-time-in-7-months-report-2017-01-11) that oil production from OPEC members fell in December for the first time in seven months.
News reports Wednesday said Saudi Arabia has informed some Asian customers that it plans to cut their supplies in February.
"It seems that the market is more impressed with Saudi compliance than with another big build in supply," said Phil Flynn, senior market analyst at Price Futures Group.
But The Wall Street Journal reported Tuesday that Libyan militias have struck deals to allow the National Oil Co., or NOC, to reopen important petroleum-producing infrastructure. As a result, Libya's production rose to a three-year high of 708,000 barrels a day this week, an NOC spokesman said, after having fallen to less than 200,000 barrels a day.
But given that the production pact became effective earlier this month, early impact of the reduction won't be known until mid-February when OPEC releases its January production data.
Rounding energy action Wednesday, February natural gas fell 5.4 cents, or 1.7%, to $3.224 per million British thermal units, ahead of Thursday's EIA update on U.S. inventories of the fuel.
-Myra P. Saefong; 415-439-6400; AskNewswires@dowjones.com
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01-11-17 1533ETCopyright (c) 2017 Dow Jones & Company, Inc.