Market Report & Analysis for 5/17/2019 Morning Edition

by | May 16, 2019 | EMI, Fuels & Markets, FutureRack, Industry News

Morning Market Overview

Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved sharply higher in early Thursday trading on geopolitical tensions in the Middle East, while slowing U.S. crude production adds to supply concerns amid a tightening global oil market.

Oil futures rallied in the early morning hours after Saudi Arabia accused Iran of ordering attacks on its key oil pipeline this week, escalating concerns of military conflict in the heart of world’s oil producing region.

Bloomberg reported that Saudi Arabia launched a retaliatory strike Wednesday night against Houthi positions in Yemen, while also sending a letter to the United Nations Security Council blaming Iran for an “act of terror” on its oil infrastructure. The United States reportedly pulled out non-emergency personnel from its embassy in Iraq, citing threats from Iranian-backed forces.

Saudi Aramco halted oil flow through the East-West Pipeline this week after explosive drone attack caused fire at pumping stations, while the current production and exports from the kingdom remained unaffected. West Texas Intermediate was also supported by lower U.S. crude oil output, down 100,000 bpd in the week ended May 10 to 12.1 million bpd, according to Energy Information Administration data released on Wednesday.

EIA said domestic oil production declined for the second straight week from record high of 12.3 million bpd in late April.

The fall in output correlates with lower operating rigs in the U.S. reported by Baker Hughes, which showed the U.S. oil rig count at 13-1/2 months low as of May 10. Oil futures advanced on Wednesday despite 5.4 million bbl build in U.S. crude inventories, which pushed stocks nearly 2% above the five-year average for this time of the year.

EIA data also showed gasoline stocks fell to the lowest level in six months last week after 1.1 million bpd drop in stockpiles, which was nearly four time above market expectations.

Paris-based International Energy Agency said on Wednesday commercial oil stocks held by OECD were drawn down 25.8 million bbl in March to 2.849 billion bbl, with the decline well above the 4 million bbl five-year average “owing to counter-seasonal crude draws.” In its Monthly Oil Outlook report, the agency detailed that OECD forward supply declined to 59.8 days March, the lowest level since July 2018, pointing to increasingly tightening global oil market.