Crude Prices Rise on Signs of Tightening Inventory - But Beware of U.S. Output, Says Analyst

Wednesday February 20, 2019

A variety of factors caused crude prices to once again edge up on Wednesday, all underscored by a single, unifying theme that runs contrary to the worries expressed by the analytical community since the New Year: the notion that the global oil market is tightening.

West Texas Intermediate rose 83 cents to $56.92 on Wednesday, while Brent gained 63 cents to $67.08 per barrel.

Traders were said to be influenced by an American Petroleum Institute disclosure that crude stockpiles rose 1.26 million barrels, well below the increase of 3.1 million barrels analysts in a Bloomberg survey had predicted.

Reuters suggested that Wednesday's gains were due to "output cuts from top producers, as well as U.S. sanctions on OPEC [Organization of the Petroleum Exporting Countries] members Iran and Venezuela; presumably, another reason was Muhammadu Buhari, president of Nigeria, declaring on Wednesday that his country - infamous in the past for its reluctance to curb output - was now willing to reduce production to help secure higher prices.

Helima Croft, global commodities analyst at RBC Capital Markets, pointed out that crude may well continue to make gains in the near term, but at the expense of Venezuela: "Venezuela is the crisis that keeps getting worse by the day," she told CNBC television, adding that factors potentially tipping prices higher would be if the U.S. sanctions against the Bolivian republic could make it more difficult to pump oil, or if secondary sanctions would prevent countries such as India and China from buying Venezuelan oil."

Another reason for crude's performance on Wednesday wasn't due to signs of a tightening market, but instead due to U.S. president Donald Trump stating that negotiations with China were going well and suggesting he was amenable to extending the deadline to complete them beyond March 1, when tariffs on Chinese imports are scheduled to rise to 25 percent.

Altogether, crude has climbed over 25 percent this year in New York, but few if any experts assume the upward trajectory is guaranteed, especially in light of developments that could see a major surge in exports from other countries.

John  Kilduff, founding partner at Again Capital, noted that the bottleneck compromising U.S. oil exports will be nullified to a significant degree this year: "I think you'll see a big leap forward on that front," he said, adding that in excess of 3.5 million barrels per day (bpd) could be exported in the coming months: "We're able to move out supertankers now on a regular basis, and that's what's really jumping the U.S. export volumes in a big way."