By Barani Krishan
Houston's problem has become the oil bulls' problem. Solution? China.
Investors and traders with long positions in oil were counting on good news Thursday from Washington, where President Donald Trump meets China's Vice Premier Liu He at 4:30 PM ET (20:30 GMT) to discuss and possibly announce what could be the outline of a trade deal to end a bitter year of tariff wars between the two giant economies.
New York-traded West Texas Intermediate crude was up just 6 cents, or 0.1%, at $62.52 a barrel by 12:42 PM ET in a clear slowing of the first-quarter oil rally. The market continued to digest data from Wednesday showing a shockingly high crude build for last week owing to issues at the Houston Shipping Channel that slowed U.S. oil exports.
WTI reached a session high of $62.67 earlier on Thursday. The U.S. crude benchmark nearly cracked the $63 resistance in the previous session before data from the Energy Information Administration showed a surprise crude inventory build of 7.24 million barrels for the week to March 29, which put investors and traders on the defensive.
London-traded Brent crude, the global oil benchmark, was up 42 cents, or 0.6%, at $69.73 per barrel in the latest session. It reached an intraday high of $69.72 that stopped short of the immediate target of $70 per barrel sought by hedge funds long on oil.
A fire late last month at a chemical storage facility in the Houston Shipping Channel led to the temporary closure of the hub, disrupting crude exports. U.S. oil shipments, which hit record highs of 3.6 million barrels per day earlier in March, slowed last week to just around 2.72 million bpd, data showed. Refinery outages have also slowed oil processing, resulting in less production of gasoline and other fuels, and more builds in crude. Refineries were operating at below 86.5% capacity last week versus the norm of around 90% at least this time of year.
Oil bulls seeking to regain market momentum are looking ahead to the Trump-Liu meeting, which could reveal some energy deals between the two countries and banish doubts about the trajectory of Chinese oil demand.
The U.S. wanted to set a 2025 target for China to meet trade pledges, Bloomberg reported. The plan would see China committing to buy more U.S. commodities, including soybeans and energy products, and allow full foreign ownership for U.S. companies operating in China as a binding pledge.
U.S. and Chinese officials negotiating a trade deal have resolved most of the outstanding issues between the two sides but were still haggling over how to implement and enforce an agreement, the Financial Times reported Wednesday.
Notwithstanding this week's slower pace, the 2019 oil rally triggered by aggressive production cuts by Saudi Arabia and the rest of OPEC, along with 10 other oil producer led by Russia, has been intact. WTI is up 38% and Brent is 30% higher. Outside of crude, the energy star has been gasoline, rising 47%, while Heating Oil, a proxy for diesel and other transportation fuels, has gained 21%.
Some analysts have cautioned that a correction could be in the offing, although none expect it to be major.
"Houston had a problem, and traders that are now fat with profits may want to lighten up," Phil Flynn, senior energy analyst at The Price Futures Group in Chicago said. "But they are also prepared to reposition on any hard break."
