Published: Thu, February 07, 2019
Business | By Eloise Houston

Oil ticks higher, market eyes US State of the Union address

Oil ticks higher, market eyes US State of the Union address

Oil edged lower on Wednesday after a report showed a rise in US crude inventories, countering expectations of a tightening market in 2019 due to OPEC-led supply cuts and USA sanctions on Venezuela.

USA crude inventories rose by 2.5 million barrels last week, according to industry group the American Petroleum Institute, and gasoline stocks also increased.

"Distillate demand increased sharply last week due to the extreme cold weather, which contributed to the declining distillate stocks", said Commerzbank analyst Carsten Fritsch.

Analysts said that US sanctions on Venezuela had focused market attention on tighter global supplies.

According to the Weekly Petroleum Status Report, U.S. commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, increased by 1.3 million barrels from the previous week.

U.S. West Texas Intermediate (WTI) crude futures were at $54.77 per barrel at 0223 GMT, up 21 cents or 0.4 percent.

"The cumulative effect of OPEC-led output cuts along with additional US sanctions on Venezuela's state oil company ... bolstered market sentiment", said Benjamin Lu of Singapore-based brokerage Phillip Futures in a note on Thursday.

"It would seem that the market is really not too anxious yet about the potential loss of Venezuelan barrels", analysts at JBC Energy wrote.

"This is either because the market assumes that the size of the impact will not be large, or at least it will be of short enough duration".

Global economic worries have weighed on market sentiment in recent days, offsetting support from signs that global supplies are tightening. Oil prices fell on Tuesday after a survey showed euro zone business expansion almost stalled in January. Prices are likely to remain rangebound, or drift sideways to lower until the US and China reach a trade deal.

Traders are still anxious about the global economic slowdown especially because of the uncertainty surrounding the U.S.

Countering the rising USA crude output and inventories are voluntary supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) aimed at tightening the market and propping up prices.

Venezuela, like fellow OPEC members Iran and Libya, was exempt from production curbs under the OPEC+ deal on expectations that its output faced involuntary downward pressure in 2019.

U.S. energy firms last week cut the number of oil rigs operating to their lowest in eight months as some drillers followed through on plans to spend less on new wells this year.

National Security Adviser John Bolton and Treasury Secretary Steven Mnuchin announce sanctions against Venezuela state-owned oil company PDVSA and embattled president Nicolas Maduro.

"The price has yet to react in any noticeable way", he said.

The key story supporting the market and driving the price action is the OPEC-led production cuts.

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