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US oil prices rise on Cushing draw, hopes of producer cooperation
[NEW YORK] US crude hit a near two-week high in a choppy session on Tuesday amid inventory declines at a key storage hub and on expectations that top producers could extend cooperation beyond 2018, while Brent fell under pressure from a stronger dollar.
The Organization of the Petroleum Exporting Countries (Opec) and non-Opec oil producers, including Russia, will discuss extending their cooperation for many more years when they meet in June as they seek to avoid major market shocks, United Arab Emirates' energy minister and Opec President Suhail al-Mazroui told Reuters.
Data from market intelligence firm Genscape showed that inventories at Cushing, Oklahoma, the delivery point for US crude futures, fell 2.1 million barrels in the week to Feb 16, according to traders who saw the data.
The combination of a new pipeline running from the hub to Memphis, along with reduced flows from TransCanada's Keystone pipeline, have sent stockpiles in Cushing to the lowest in about three years.
Flows on Keystone pipeline were decreased after a leak in November.
A strengthening dollar, which hit a six-day high, however, weighed on oil prices. A more robust dollar makes oil and other dollar-denominated commodities more expensive for holders of other currencies.
Brent crude futures ended the session 42 cents, or 0.6 per cent, lower at US$65.25 a barrel after trading between US$65.81 and US$64.78 a barrel.
US West Texas Intermediate (WTI) crude futures settled up 22 cents, or 0.4 per cent, at US$61.90 a barrel, as the March contract expired. Prices rallied to a high of US$62.74 a barrel early in the session, the highest since Feb 7.
The most active US crude futures contract for delivery in April settled up 24 cents at US$61.79 a barrel.
Front month US crude's discount to the second month CLc1-CLc2 flipped to a discount ahead of the March contract's expiration, falling to a low of a discount of 10 cents per barrel, the widest since Dec 11.
Monday's US holiday for Presidents Day supported WTI's performance compared with Brent as the US markets caught up with Monday's gains, said Carsten Fritsch, oil analyst at Commerzbank AG in Frankfurt, Germany.
The divergence in prices kept US crude's discount to Brent WTCLc1-LCOc1 near a six-month low after widening to more than US$7 in December.
A narrower premium of Brent to WTI means it is less attractive for consumers in northwest Europe to import US crude, especially with refiners conducting maintenance. Premiums for local North Sea grades are at multi-month lows.
"(Brent's) premium has been narrowing. It's more so that WTI has been rising and Brent's kind of stayed flat ... it doesn't make the exporting of oil out of the US as attractive," said Rob Thummel, portfolio manager at energy investment manager Tortoise Capital in Kansas City, Missouri.
Overall, oil markets remain supported by supply restraint on the part of Opec, which started last year to draw down excess global inventories.
Ayed Al Qahtani, Opec's head of research, said the excess of oil held in storage has fallen in the past year to stand 74 million barrels above the five-year average.
This compares with a surplus of around 340 million barrels in January 2017, he said.
"The latest discussions of the Joint Technical Committee of Opec and non-Opec nations concluded that the oil stocks are dissipating at a faster pace and the market will now rebalance between 2Q and 3Q," Goldman Sachs said in a daily note.
US crude inventories, however, likely saw a build for the fourth consecutive week, according to a preliminary Reuters poll.