Crude futures settled higher Tuesday, extending the price rally for a seventh straight session amid growing evidence that OPEC supply cuts will tighten the market this year.
ICE March Brent settled $1.39 higher at $58.72/b and NYMEX February WTI was up $1.26 to settle at $49.78/b.
The oil complex gleaned support Tuesday from widespread optimism that ongoing US-China trade talks may avert a global economic slowdown by thawing tense relations between the two countries.
NYMEX product futures also finished the day higher, with February ULSD settling 4.54 cents higher at $1.8238/gal and February RBOB up 2.19 cents at $1.3626/gal at market settle.
While bullish sentiment stemming from a possible US-China rapprochement has supported prices this week, it is growing evidence of a tighter supply picture that has sustained the 2019 rally.
OPEC's December crude output fell 630,000 b/d to a six-month low of 32.43 million b/d, an S&P Global Platts survey of industry officials, analysts and shipping data showed Tuesday.
The cuts were led by Saudi Arabia, which trimmed its production 401,000 b/d to 10.6 million b/d last month. Riyadh has pledged to further cut January production to around 10.2 million b/d, well below the 10.31 million b/d level it pledged to maintain for the first half of 2019 as part of the 1.2 million b/d cuts OPEC and its allies agreed to in early December.
Furthermore, Saudi Arabia announced Monday it would cut exports to around 7.1 million b/d by the end of January, with a goal of sending Brent crude to an $80/b level.
But the price reaction to the announced cuts has so far been tepid as the market has instead waited for tangible signs of lowered output.
Brent and WTI futures each jumped more than 2% interday last week after ship-tracking data showed Saudi Arabian crude export loadings fell sharply in December. Data from cFlow, Platts trade-flow software, estimated Saudi crude exports at 7.528 million b/d in December, down from 8.102 million b/d in November.
Analysis of tanker rates shows that ex-Arabian Gulf VLCC freight costs have stepped lower in January, indicating a possible demand dropoff that could portend lower crude loadings this month.
So far in January, Platts assessed lump sum Arabian Gulf VLCC rates to Singapore at an average of $7.85/mt, down more than 15% from $9.33/mt in December. The key Arabian Gulf-China Worldscale rate also was assessed sharply lower at around w64, a more than 26% decline from an average of w87 in December.
Despite the general crude price rebound, early-month futures structures remain largely unchanged. ICE Brent second- and front-month contracts have sustained a roughly 20-cent contango so far this year, while the front/sixth-month spread has held a consistent 80 cent-$1.00 contango.
Likewise, at-the-money implied volatility for NYMEX February WTI remains high at around 45%, suggesting the market continues to factor in significant price risk.
