Oil Futures Shallowly Mixed Tuesday

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and the Brent contract on the Intercontinental Exchange were shallowly mixed in early trading Tuesday ahead of the Energy Information Administration's monthly outlook for the oil market set for release near noon Eastern Time. U.S. plans to grant waivers permitting eight countries to continue purchasing Iranian oil weighed on Brent futures -- the global price benchmark for crude.

News late last week that the United States granted eight countries waivers from sanctions on Iranian oil exports continues to weigh on oil futures even as sanctions took effect on Monday. The waivers are a departure from U.S. President Donald Trump's previous comments that the United States would look to drive Iranian oil exports to zero.

The countries receiving waivers include China, India, Japan, South Korea, Turkey, Taiwan, Italy and Greece, with the waivers allowing ongoing purchases of Iranian oil without the threat of financial punishment from the United States for 180 days.

In defending the issuance of waivers, U.S. Secretary of State Mike Pompeo said the countries, without identifying them, have reduced Iranian oil purchases and cooperated on "many other fronts." U.S. President Donald Trump on Monday said pressing U.S. oil sanctions to zero would be a "shock" to the world economy, so the United States will go slower in punishing Iran for its nuclear and ballistic missile programs and military adventurism in the Middle East.

Since the U.S. pullout of the Joint Comprehensive Plan of Action in May, Iran's oil exports have plunged by 1.0 million barrels per day (bpd) from about 2.5 million bpd in April. Reuters reports that Iranian oil exports may range somewhere from 1.0 million and 1.5 million bpd in November amid U.S. pressure leading up to Sunday's deadline to cutoff Iran oil purchases. The report says Iran expects to maintain 1.1 million bpd in oil exports amid the sanctions. The waivers are expected to lift Iran's oil exports in December.

In an interview with S&P Global Platts today, Fatih Birol, executive director of the International Energy Agency, was cautious in his view of the market, and said the U.S. waivers were helpful in holding oil prices down. He said oil producers Saudi Arabia, Russia and others can't let up now, with production from the two countries surging in September and October. Birol warned that threats to supply remain, and that Venezuelan crude production could decline below 1.0 million bpd "soon."

Crude production in Venezuela was 1.197 million bpd in September, which compares with 1.902 million bpd in September 2017 and 2.375 million bpd averaged in 2015. Venezuela's economy is in crisis, and reports indicate the oil producer is running out of transportation fuel and its refineries barely processing any crude oil, with the crude they have being exported to earn much needed cash.

In early trading, NYMEX December West Texas Intermediate futures were flat at $63.10 per barrel (bbl), with ICE January Brent down $0.30 near $72.90 bbl. NYMEX December ULSD futures were up 0.5 cent near $2.2015 gallon, and December RBOB futures were 0.5 cent higher near $1.6970 gallon.

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

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