WTI, Brent Futures End Higher

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange RBOB futures settled lower Tuesday amid abundant gasoline stocks while West Texas Intermediate, ULSD and Brent on the Intercontinental Exchange advanced on the session, as a precarious global oil-demand supply balance prompted a warning from International Energy Agency Executive Director Fatih Birol that the "oil markets are entering the red zone."

Birol made his comment earlier today to Bloomberg, noting everyone in the industry should "see the risky situation," as supply availability tightens in the fourth quarter amid U.S. sanctions on Iranian oil exports beginning in early November.

The IEA head, with the agency established in the 1970s as a watchdog for energy consuming nations, indicated he urged the Organization of the Petroleum Exporting Countries and other major producers to ramp up oil production now to head off a price spike in global oil prices. Birol warned that too high of an oil price could shake the global economy and cut into demand.

In September, IEA said it expected global oil demand at a record high 100.3 million bpd during the current fourth quarter, with the Paris-based agency set to update that outlook Friday morning.

Birol's comments also followed a Reuters' report late Monday that Iranian oil exports declined to 1.1 million bpd during the first week of October from their 1.6 million bpd estimate for September, and that on current course, Iran's oil exports would fall below 1.0 million bpd this month. In April, Iran's oil exports averaged 2.5 million bpd.

Exports could vary significantly week-to-week, and Iran's oil exports could climb over the next few weeks. The estimates also follows news that the United States was actively considering waivers from sanctions that take effect Nov. 4, with two companies in India reportedly securing approval from Washington to purchase Iranian oil.

Falling Iranian oil exports join an unabated decline in Venezuela's oil production amid the OPEC member's economic collapse following years of mismanagement under the country's socialist agenda, with Venezuela now a totalitarian state. On Thursday, OPEC will report production rates for September, with Venezuelan oil production already at multi-decades low at 1.235 million bpd in August, expected to have again declined in September. Some analysts think Venezuelan oil production could drop to 1.0 million bpd by year's end.

Brent's premium to WTI widened to just above $10 bbl at settlement Tuesday, reflecting the concern over global supply tightness, while pipeline and export constraints are seen limiting how much more oil the United States can bring to market this year. The Energy Information Administration last reported U.S. crude production at a record high 11.1 million bpd. Output is expected to increase next year as new capital projects are completed to expand U.S. infrastructure.

U.S. oil production in the Gulf of Mexico has been reduced this week because of a fast moving Hurricane Michael that is expected to intensify from a Category 2 status to Category 3 before it makes landfall along the Florida Panhandle Wednesday morning.

The Bureau of Safety and Environmental Enforcement estimated that 39.5% of the current oil production and 28.4% of the natural gas production in the GOM has been shut-in as of this morning.

ULSD futures, which have been underpinned by below normal inventory, advanced for a second session following the forced shutdown of Irving Oil's 320,000 bpd St. John refinery in New Brunswick, Canada, following an explosion and a fire that reports indicate occurred at the refinery's diesel hydrotreater. Part of the refinery was already shut for seasonal turnaround, with the company unsure when it would return the facility to commercial operations. The St. John refinery ships more than half of its output to the U.S. Northeast.

The EIA reports distillate stocks in New England states are down 1.026 million bbl or 12.2% against year ago at 7.363 million bbl as of Sept. 28. Moreover, early weather forecasts expect a cold early start to winter this season, with the EIA set to release its Winter Outlook Wednesday as part of its Short-term Energy Outlook.

At settlement, NYMEX November WTI futures were up $0.67 at $74.96 bbl, with ICE December Brent rallying $1.09 for an $85 bbl settle. NYMEX November ULSD futures settled 2.96cts higher at $2.4238 gallon, with the November RBOB contract down 1.63cts with a $2.0774 gallon settlement.

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

(BAS)

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