Crude Oil Caps Off Strong Week

West Texas Intermediate (WTI) crude oil for May delivery gained 84 cents Friday, settling at $60.14 per barrel. The WTI, which traded within a range from $59.41 to $60.73, is up 1.9 percent against the March 22 settlement.

June Brent crude oil futures added 48 cents to end the day at $67.58 per barrel. For the week, the Brent is up less than one percent.

“Oil hit a four-month high today during a very strong week for crude which saw global supply tightening concerns outweigh any negative economic news or a plea by President Trump for OPEC to increase production,” said Tom Seng, Assistant Professor of Energy Business with the University of Tulsa’s Collins College of Business. “Both benchmarks are up about 25 percent this year so far.”

Seng noted that oil prices declined Monday after the release of weak global economic data, the apparent lack of progress in U.S.-China trade talks and the inversion of a key yield curve for U.S. government bonds. However, he added that prices rallied through the remainder of the week with the OPEC+ group still committed to output quotas and lingering global crude oil supply concerns.

“Iran and Venezuelan production remain sanction-curtailed,” continued Seng. “And, with WTI approaching the key resistance level of $60 per barrel yesterday, President Trump appealed to OPEC in a tweet to increase its output. That fell on deaf ears as Saudi Arabia needs the higher prices for its national budget.”

Seng also pointed out that the latest Energy Information Administration (EIA) Weekly Petroleum Status Report showed an unexpected, 2.8 million-barrel build in U.S. commercial crude inventories – higher than the American Petroleum Institute’s 1.9 million-barrel projection.

“While on its face, this would seem bearish for prices, distillates inventories declined, adding to the bullish sentiment for the week,” Seng said, adding that other EIA report highlights include:

· Total oil inventories at just two percent higher than the five-year average for this time of year

· A decline in refinery utilization to 86.6 percent

· Crude imports 12 percent lower than year-ago levels (part of which stems from the loss of Venezuelan heavy crude imports)

· A 540,000-barrel increase in oil stocks at the Cushing, Okla., storage hub

· Steady week-on-week oil production of 12.1 million barrels per day

“Baker Hughes reported that the number of rigs drilling for oil fell by eight last week, the sixth straight week of declines,” said Seng. “On the economic news front, the stock market looks to end higher on the week despite some ups and downs while a stronger U.S. dollar could not dampen oil’s rally.”

Seng also observed that the WTI/Brent spread now stands at approximately $8.25 per barrel.

“Technically, the May WTI NYMEX futures contract faces possible retracement next week as the lows today are trading around the five- and 10-day moving averages while well above the 20-day moving average,” Seng noted. “Momentum indicators show the contract in an overbought condition. Volume remains strong with other 600,000 WTI futures contracts trading every day now.”

Like crude oil, reformulated gasoline (RBOB) also finished higher Friday. The April RBOB contract price gained nearly two cents to settle just under $1.90 per gallon. Week-on-week, RBOB is down nearly two percent.

“Unleaded gasoline futures rallied early week, declined yesterday, but settled back up today near last week’s price levels,” said Seng. “Total gasoline inventories fell by 3 million barrels last week but still remain on the higher end of the five-year average for this time of year.”

The May Henry Hub natural gas futures contract lost five cents Friday, settling at $2.66. Natural gas is down 3.6 percent for the week. Seng observed that the EIA’s latest natural gas storage figures showed:

· A week-on-week withdrawal of 36 billion cubic feet (BCF), which fell just below analysts’ expectations

· 1.1 trillion cubic feet (Tcf) of total gas in inventory, with stored gas 21 percent lower than a year ago and 32 percent below the five-year average

· Production last week at 89.3 Bcf per day (Bcfd) against demand that slipped to 87.7 Bcfd amid decreases in power, industrial, residential and export demand

· Steady 4.6 Bcfd exports to Mexico and LNG exports that fell to 4.1 Bcfd

“Infrastructure constraints in the Permian Basin are well known, but the resultant prices for natural gas are extremely low,” continued Seng. “Using NYMEX natural gas futures for May, along with Basis Swap values for the Permian, today’s price for gas in May amounts to about $0.20 per million British thermal units (MMBtu). Gas produced in association with oil is very high in natural gas liquids, which must be extracted before the natural gas can be sent to market. So, additional transmission pipeline capacity alone cannot solve this problem. Wellhead gathering and field processing plants need to be expanded or built.”

Seng also noted that record snowfall in the U.S. Northwest should result in high levels of runoff this spring, bringing abundant water to downstream rivers for hydroelectric generation. That, he noted, could lead to a dampening effect on natural gas prices out West this summer.

“Technically, May natural gas prices are below the five-, 10- and 20-day moving averages,” concluded Seng. “The contract is in an oversold market condition.”