CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and the Intercontinental Exchange Brent contract settled mixed Friday and ended the week down sharply following a steep two-day selloff midweek that pressed West Texas Intermediate and Brent futures to three-week lows, as concern over demand emerged and equities tumbled.
Oil futures, along with equities, found their footing Friday, although the crude grades and ULSD have backed off four-year highs, and the RBOB contract traded at a new seven-month low on the spot continuous chart before reversing up to settle with a modest gain.
NYMEX November WTI futures settled up $0.37 at $71.34 per barrel (bbl) after inside trade, although erased $3.00, or 4.0%, of its market value on the week, slumping to a $70.51 three-week low on Thursday.
"Traders may position around the $71 per barrel level," said Michael O'Donnell, market strategist with RJO Futures, a division of R.J. O'Brien. "It may be possible that this level continues to act as support."
ICE December Brent crude edged up $0.17 with an $80.43 bbl settlement, while down $3.73, or 4.4%, on the week. Brent's premium to the WTI contract narrowed to a $9.09 bbl three-week low at settlement.
Although still wide and an alluring incentive for U.S. crude exports, the narrowing arbitrage between the international crude benchmark and the U.S. price marker showcases a market view that there's likely enough oil supply in the fourth quarter to satisfy demand. The reduced Brent premium follows Friday's short-term outlook from the International Energy Agency that reported crude production by the Organization of the Petroleum Exporting Countries reached a one-year high of 32.78 million barrels per day (bpd), while inventory restocked by 500,000 bpd during the second quarter and likely repeated the same supply build during the third quarter. IEA said these statistics "lends weight to the argument that the oil market is adequately supplied for now."
Worry over Iranian oil exports amid U.S. sanctions that are set to take effect in a little more than three weeks had rallied oil futures through the third quarter and into October, with oil futures previously rallying in May after the United States announced re-imposed sanctions on Iran as the U.S. pulled out of the Iranian nuclear accord. Since May, major oil suppliers led by Saudi Arabia have lifted oil production a net 1.4 million bpd. On Wednesday, the Energy Information Administration reported U.S. crude production at a fresh record high of 11.2 million bpd during the first week of the fourth quarter.
IEA remained cautious in its outlook, noting Iran's oil exports have declined 800,000 bpd from May to September, and are "likely to fall by significantly more," adding there's an "ever-present threat of supply disruptions in Libya and a collapse in Venezuela."
The outlook included an 110,000 bpd downward revision in projected global oil demand growth for this year and in 2019 due to expectations for slowing world economic growth due, in part, to high oil prices, along with the U.S.-China trade dispute. Higher oil prices and a strengthening U.S. dollar, which reached a seven-week high this week, are also having an outsized adverse effect on emerging economies with high debt. Bloomberg reported today that India is considering an expansion of its Strategic Petroleum Reserve to help buffer sudden increases in global oil prices.
IEA noted too, that both supply and demand remained high, set to reach "twin peaks" in the current fourth quarter at about 100 million bpd, and that meeting growth in oil demand has strained parts of the "system."
"Recent production increases come at the expense of spare capacity, which is already down to only 2% of global demand, with further reductions likely to come. This strain could be with us for some time and it will likely be accompanied by higher prices," said IEA.
For oil products, NYMEX November ULSD futures broke below $2.30 gallon for the first time in October with a $2.2953 intraday low, settling down 1.09 cents on the session and 7.1 cents, or 3.0%, lower on the week at $2.3213 gallon. Despite the decline, ULSD futures are underpinned by below normal inventory, with days of forward supply cover tumbling 3.4 days in early October to a two-month low at 31.5 days.
NYMEX November RBOB futures reversed off a $1.9081 gallon seven-month spot low to settle up 0.93 cent at $1.9420 gallon, although lost 14.41 cents, or 6.9%, of its value on the week.
The gasoline contract remains in the crosshairs of surplus supply, with stocks at a record high for this year, while Hurricane Michael has caused demand destruction in large swathes of the Southeast.
Brian L. Milne can be reached at email@example.com
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