Oil Up in Final Trade Session for Q3

CRANBURY, N.J. (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied during the final session of September and the third quarter, with October ULSD and November Brent expiring at nearly four-year spot highs and October RBOB futures at a one-month high. November West Texas Intermediate settled at a 2-1/2 month high on the spot continuous chart.

Friday's rally was spurred by the expiries, coming on the heels of an eventful week that included a meeting with 20 oil producing countries on Sunday, an address at the United Nations General Assembly by U.S. President Donald Trump Tuesday when he blasted Iran and Venezuela, an escalation in the U.S.-China trade dispute with both countries putting into effect tariffs on one another's imports, and the third rate hike this year by the Federal Reserve. Weekly federal data released midweek showed the refinery maintenance season began in mid-September, while monthly data confirmed a strong U.S. economy, while U.S. consumers are optimistic about their personal finances and job opportunities.

The chief catalyst in a fiery week of trade was Sunday's meeting of oil ministers and officials from the Organization of the Petroleum Exporting Countries and non-OPEC oil producers led by Russia aligned in a 2016 production agreement, with 20 of the 25 countries represented. The decision not to hike output above the pact's quotas triggered a rally in oil futures, as the market expects tight supply in the fourth quarter as a second phase of U.S. sanctions against Iran takes effect on Nov. 4, while Venezuelan oil production continues its freefall amid an economic and humanitarian crisis. The lost supply comes as the International Energy Agency projects record high global oil demand in the fourth quarter at 100.3 million bpd.

As news trickled out Saudi Arabia would quietly ramp up production, declining to push for the increase to be recognized in their agreement Sunday that would undoubtedly be vetoed by Iran, the market worried about how much spare capacity the world has, with the majority of the supply buffer held by the Saudis. The week's debate turned to expectations that global oil prices would hit $100 bbl later this year or in early 2019.

Brent's premium to WTI futures had widened to more than $10 bbl in early trading Friday, a 3-1/2 month high, although settled at a still wide $9.47 bbl. The arbitrage reflects lost crude barrels globally while U.S. crude production reached a fresh record high of 11.1 million bpd during the third week of September, EIA reported midweek. The wide arbitrage will continue to lure foreign buyers to purchase U.S. crude, with the crude export rate reaching a nine-week high of 2.64 million bpd last week.

After a slow start amid a rallying U.S. dollar, which hit a 2-1/2 week high Friday following the Fed's rate hike and bullish assessment of U.S. economic growth, NYMEX November WTI futures led Friday's advance, settling up $1.13 at $73.25 bbl, while gaining $2.47 since prior Friday and $3.45 bbl in September.

ICE November Brent expired $1 higher on the session at $82.72 bbl, the highest settlement on the spot continuous chart since Nov. 7, 2014, and spiked $3.92 on the week and $3.45 bbl on the month. The December Brent contract outpaced the advance by the expiring contract to move into parity, up $1.35 to an $82.73 bbl settlement.

NYMEX October ULSD futures surged 2.87 cents on the session and 12.58 cents on the week to expire at $2.3518 gallon, the highest settlement on the spot chart since Nov. 26, 2014, and pulling ahead of November delivery, which settled at $2.3485 gallon. The ULSD contract gained 11.05 cents in September on a spot month basis.

NYMEX October RBOB futures closed the seasonal gap carved out with the September contract's expiration on Aug. 31, rallying to a $2.1180 gallon four-week high, and expired at $2.1012 gallon, up 1.88 cents on the session and at a 1.55 cents premium to November delivery. RBOB futures rallied 8.41 cents this week while down 4.25 cents on the month.

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

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