Oil scores best January on record as supply cuts revive market

By Alex Nussbaum on 1/31/2019
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Photo: Apache.

NEW YORK (Bloomberg) -- Oil closed lower but still scored its best January gain on record, after a month in which OPEC’s emergency supply cuts started to take root and panic eased about the global economy.

Futures in New York dived 0.8% late Thursday, after a government report that U.S. production had swelled to an all-time high in November. Nonetheless, benchmark West Texas Intermediate crude prices ended the month 18% higher, recouping about a third of the losses from a tailspin late last year amid fears of a global glut.

New data Thursday showed OPEC started the month in full compliance of a plan to slash output.

That came on the heels of the Fed’s signal Wednesday that it’s done raising interest rates for now and a U.S. report showing robust gasoline demand and smaller-than-expected growth for crude supplies.

“Yesterday’s report was a big event," said Bob Yawger, director of the futures division at Mizuho Securities USA. “The crude oil number was smaller than most people were looking for and the gasoline draw was huge. That was a sector that was really starting to weigh on the whole energy patch."

West Texas Intermediate crude for March delivery fell 44 cents to close at $53.79/bbl on the New York Mercantile Exchange. Its monthly gain was the biggest for any January in records going back to 1983.

Brent for March settlement, which expires Thursday, was up 24 cents at $61.89/bbl on the London-based ICE Futures Europe exchange. Futures increased 15% this month, on course for the biggest gain since April 2016. The more-active April contract declined 70 cents to $60.84. The global benchmark crude was at an $8.10 premium to WTI.

Oil has rebounded this year after plunging almost 40% in the final quarter of 2018. Those declines prompted the Organization of Petroleum Exporting Countries and its allies to pledge output curbs to help offset growing American production. The crisis in Venezuela has threatened to limit supplies further, while the question of whether the U.S. and China can resolve their trade differences remains pivotal for demand.

“Venezuela is giving us confidence in our bullish crude view,” Bank of China International analyst Xiao Fu wrote in a report. “The disruption will hit in particular high-transparency stocks on the U.S. Gulf, which are already the target of Saudi action.”

Output cuts

U.S. data released Wednesday showed Saudi Arabia shipped the least amount of oil to the U.S. on a weekly basis in about 15 months, the latest evidence that the OPEC+ coalition cuts are impacting the market. Under a plan agreed in December, the producer group and its allies will reduce their output by a combined 1.2 MMbopd from October levels.

OPEC crude production fell to 30.85 MMbpd in January, led by cuts from Saudi Arabia, according to a report Thursday from Vienna-based consultant JBC Energy. The 11 members covered by the pact started the year “strongly," with compliance at 109%, JBC said.

Meanwhile, high-level trade talks between the U.S. and China continued for a second day in Washington on Thursday. Although a breakthrough is seen as unlikely from this round of negotiations, the White House has said a concluding statement will be released on the progress they’ve made on core issues.

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