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Oil Falls, But Set for Big Weekly Gain

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01/11/2019 | 12:11pm EDT

By Dan Molinski

-- Oil prices declined Friday after nine straight days of increases as a retreat in U.S. stock markets reduced risk appetite and spurred profit-taking. But oil remains on track for an 8% weekly gain as production cuts by major producers, a weaker dollar and further export declines from sanctioned Iran buoy prices.

-- West Texas Intermediate futures, the U.S. oil standard, was 1.5% lower at $51.78 a barrel on the New York Mercantile Exchange. Prices closed last Friday at $47.96 a barrel.

-- Brent crude, the global oil benchmark, was 1.5% lower at $60.75 a barrel on London's Intercontinental Exchange.

HIGHLIGHTS

Comeback: U.S. benchmark oil prices had risen nine consecutive trading sessions through Thursday's close, the longest streak of gains since 2010. This has marked a sizable comeback from Christmas Eve day, when prices closed at an 18-month low of $42.53 a barrel. "A major bull-run is still far from formulating, and prices are still close to 30% lower than the recent highs in October," said Robbie Fraser, global commodity analyst at Schneider Electric. "For the near-term, however, the OPEC+ cuts, the continuous drop in Iranian exports, and a weaker dollar could help support crude prices."

Fed-Led Demand: Analysts at Bank of America Merrill Lynch said near- to medium-term support for oil is coming from supply management, pointing to OPEC cuts, Iran's struggles and less-robust U.S. oil production. They see year-over-year global oil supply growth of just 400,000 barrels a day in 2019, "and a deficit building into the summer months." After that, the Federal Reserve may help support oil prices. "An eventual shift in the U.S. monetary tightening path in the coming months could lead to a weaker dollar this year, a risk-on rally, and a major uplift in inflation assets like oil into the summer," the analysts said. "We are constructive on oil because the Saudi (supply) put was triggered and see a Fed (demand) put eventually kicking in too."

INSIGHT

Bullish Venezuela: Economic woes in socialist-run Venezuela has reduced the OPEC-member's oil industry to a shell of what it once was, a factor that has long been bullish for oil prices as it means less crude oil to fill the global tank. Thursday's swearing-in of President Nicolás Maduro to a second, six-year term means Venezuela's struggles with oil production, exports, refining and every other part of the industry will just keep trudging along, said Eurasia Group's Risa Grais-Targow. "Oil production is likely to further decline from its current level of 1.1M bpd (even if at a slower rate since remaining production is now primarily join ventures)," she said. "And any oil-related sanctions from the U.S. would further complicate cash-flow." Venezuela's socialist revolution is now nearly 20 years old, and while Ms. Grais-Targow thinks Mr. Maduro remains vulnerable, she says that for now "we see no indication of a catalyst for political change."

AHEAD

-- Baker Hughes reports its weekly rig-count report on U.S. drilling activity on Friday at 1 p.m. ET.

Christopher Alessi contributed to this article.

Write to Dan Molinski at Dan.Molinski@wsj.com

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