Oil Futures Close at 5-Month High

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange spiked Monday. Both the U.S. and international crude benchmarks posted the largest one-session gains in nearly a decade, as market participants assess the scale of disruption to Middle East crude supplies caused by an unprecedented attack on major Saudi Arabian oil-processing facilities.

NYMEX October West Texas Intermediate futures surged $8.05, or 13.05%, to settle at $62.90 per barrel (bbl), the highest settlement on the spot continuation chart since May 21. The November contract ended the session at a $0.23 discount to the October contract, which expires Friday.

ICE November Brent crude advanced $8.80, or 14.02%, to $69.02 per bbl, also the highest spot-month settlement since the last week of May. Brent, the international crude price marker, widened its premium to the U.S. benchmark by about $1 to a more-than-$6-per-bbl six-week high.

NYMEX October ULSD futures added 20.6 cents, or 9.9%, to settle at $2.0838 gallon. NYMEX October RBOB futures ended the session up 19.93 cents, or 11.4%, at $1.7524 per gallon, a two-month-spot-high settlement.

A devastating attack on Saudi Arabian oil-processing plant and oilfield over the weekend severely disrupted crude flow from the Middle East, leading to the shutdown of pipelines and bottlenecks in the regional supply chain.

Oil futures jumped to five-month-high settlements on Monday after Organization of the Petroleum Exporting Countries and Russia said they would not increase production to fill in potential gaps in global supplies, stoking market fears of potential supply shortfall.

According to sources, Saudi Arabia tapped into national inventories to offset some of the shut-in production amid ongoing restoration efforts. The latest reports indicate Aramco is on track to bring 2 million barrels per day (bpd) of the shut-in 5.7 million bpd back online by the end of Monday. It remains a fluid situation, with no additional details available at the time of reporting. Aramco has not yet issued a force majeure.

Attacks on the largest crude processing facility in Saudi Arabia forced a temporary closure of the kingdom's key oil transport pipeline from Khurais oil field to terminals and refineries on the Red Sea. Abqaiq complex has the capacity to process 7 million bpd of crude oil and is located in the heart of eastern province of Saudi Arabia. Last year, Abqaiq plants processed about 50% of Saudi Aramco's output originated from Ghawar, Shaybah and Khurais oil fields.

Alleged missile attack also struck the Khurais oil field -- the kingdom's second largest after Ghawar -- which has the capacity to pump around 1.5 million bpd of mainly Arab light crude. Following the attacks, Aramco reportedly asked some of its term buyers in Asia to take Arabian heavy instead of Arabian light, as lighter oil seems to have been impacted by the weekend attack.

Reports also indicate that at least 11 supertankers are currently waiting to load oil cargoes from Saudi Arabian ports, compared with five vessels on Thursday, according to Refinitiv Analytics data.

According to the Joint Organization Data Initiative, Saudi Arabia stockpiles totaled 187.9 million bbl in June, which equates to 26.8 days of cover, assuming zero crude production. The kingdom is the largest producer within OPEC, with output reaching 9.805 million bpd in August, according to OPEC.

Additionally, Reuters reported Monday afternoon Saudi Arabia shut down its oil pipeline to Bahrain, which carries 220,000 to 230,000 bpd of Arab Light crude from state oil company Saudi Aramco to Bahrain's Bapco. Consequently, Bapco shut down a 22,000-bpd crude distillation unit at its Sitrah refinery on Monday.

Saudi Energy Minister said preliminary investigations show Iranian weapons were used in the latest attack on Aramco assets, while also labeling an attack as an extension of the previous hostile acts against the kingdom. Saudi Arabia called upon the international community to bear its responsibility in condemning the act of aggression. U.S. President Donald Trump previously said the United States is ready for military action in the region if the situation escalates.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)

Copyright 2019 DTN/The Progressive Farmer. All rights reserved.