Crude Rallies in Tuesday Trade

CRANBURY, N.J. (DTN) -- The front-month contracts for oil futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied early Tuesday following the Labor Day holiday, with West Texas Intermediate and ULSD futures spiking to new highs as Tropical Storm Gordon takes a northwest path in the Gulf of Mexico. It is expected to hit landfall Tuesday evening along the Louisiana-Mississippi-Alabama coastline as a potential Category 1 hurricane.

The rally comes despite news of increased production by the Organization of the Petroleum Exporting Countries in August to a more than one-year high. Bloomberg reported August OPEC production at 37.74 million barrels per day (bpd), near Reuters' estimate at 32.79 million bpd on Friday (8/31), up more than 400,000 bpd from July's 32.323 million bpd, and at the highest output rate since July 2017 when production was 32.834 million bpd. (Congo joined OPEC in June.)

Higher production was driven by Iraq and Libya last month despite lower production from Iran amid the effect of U.S. sanctions, with Reuters reporting Iranian oil exports down 150,000 bpd. Oil production by Saudi Arabia also increased in August.

Iran's oil exports, which averaged 2.3 million bpd in June, could decline by 1.1 million bpd later this year when a second round of U.S. sanctions take effect in early November that target Iranian oil exports, according to ESAI Energy.

Meanwhile, renewed fighting in Libya that prompted a declaration of a state of emergency in Tripoli could again force shut oil export facilities. Separately, a collision last week at Venezuela's crude export facility in the Caribbean has limited operations, with repairs on a damaged dock at the Jose terminal potentially taking more than a month to complete and possibly limit Venezuela's oil exports. Venezuela's oil production has been on decline, expected at roughly 1.0 million bpd at year-end compared with output at 1.278 million bpd in July.

Concern over supply disruptions pushed WTI futures to a more than two-month high and Brent at a more than three-month high. ULSD futures spiked to a 3-1/2 year high on the first day of trade with the October contract as nearest to delivery. RBOB futures gapped down 4.52 cents on the first day of trade with the October contract as nearest to delivery, reflecting the end of peak summer driving demand and the transition to lower to produce winter gasoline specifications.

NYMEX October WTI futures were up about $1.35 at $71.17 barrel (bbl) at 9 a.m. ET, and near a $71.40 bbl two-month spot high, having since pared the advance. The advance comes despite a stronger U.S. dollar that reached a six-day high in index trading against a basket of currencies.

ICE November Brent crude were up $1.20 following Monday's $0.51 advance to $79.35 bbl, having traded at a $79.72 bbl better-than three-month spot high.

NYMEX October ULSD futures spiked to a $2.3093 gallon 3-1/2 year high on the spot continuous chart overnight, paring the advance to $2.2975 gallon at 9 a.m. ET, up 5.44 cents. NYMEX October RBOB futures were up 4.97 cents at $2.0467 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com

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