Oil Futures Slump Thursday

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and the Brent contract on the Intercontinental Exchange registered another down day. West Texas Intermediate registered its ninth consecutive session loss, slipping into bear market territory as U.S. crude production soars above previous estimates.

A wave of oil production from the three major global oil producers -- Saudi Arabia, Russia and the United States -- continues to trigger long liquidation in oil futures, with the Energy Information Administration's recent recalculation of U.S. production slamming the WTI futures contract. EIA Wednesday reported U.S. crude production surged 400,000 barrels per day (bpd) last week to a record high 11.6 million bpd.

Brent crude futures outpaced the loss by WTI, settling at a seven-month low even as the Organization of the Petroleum Exporting Countries is set to meet with their non-OPEC-producing partners on Sunday, Nov. 11, in Abu Dhabi when they are expected to discuss cutting production and as U.S. sanctions on Iranian oil exports took effect Monday.

Saudi Arabia is said to have had discussions with Russia about cutting production next year, with global oil demand the weakest in the first quarter. Russia is set to boost their production following heavy investment in their upstream activities, although Moscow and Riyadh continue to nurture their relationship of cooperation.

The past month has seen a dramatic reversal in oil futures with speculators running for the exits as a perception of a short market in the fourth quarter has evolved, with global inventory restocking at a 2.0 million bpd pace in October, according to the EIA on Tuesday. Another stunner was the 1.22 million bpd upside revision in 2018 world oil production by the EIA this week from one month earlier.

These developments come on the heels of news the United States granted eight countries waivers from U.S. sanctions on Iranian oil purchases for 180 days, contradicting previous comments from the United States that they would press Iranian oil exports to zero.

U.S. Secretary of State Mike Pompeo earlier this week pushed back on the assertion that the United States was going soft on Iran, indicating the goal remains zeroing out Iran's oil sales. U.S. pressure has taken 1.0 million bpd of Iranian oil off the market since the second quarter. Iran's oil exports are expected to increase near-term because of the waivers.

U.S. economic growth remains strong, said the Federal Reserve this afternoon.

"Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate," said the central bank in their statement following a two-day monetary policy meeting in which Fed officials maintained the federal funds rate at 2.0% by 2.25% as expected.

The Federal Reserve did note that "growth of business fixed investment has moderated from its rapid pace earlier in the year," although consumer spending "continued to grow strongly."

The U.S. dollar rallied following the 2:00 p.m. EST release of the FOMC statement while major equity indexes were shallowly mixed after Wednesday's rally.

NYMEX December WTI futures settled down $1.00 at $60.67 per barrel (bbl), the lowest settlement on the spot continuous chart since early March. ICE January Brent ended trade down $1.42 at $70.65 bbl, the lowest spot settlement since early April.

NYMEX December ULSD futures tumbled 6.88 cents from a one-week high to $2.1683 gallon, pressured by a shorter duration of expected below-normal temperatures in the heating-oil-dependent Northeast. The National Oceanic Atmospheric Administration's Climate Prediction Center continues to forecast below normal temperatures in the Northeast in their six- to 10-day outlook, but now sees readings moderating in their eight- to 14-day outlook.

NYMEX December RBOB futures edged down 0.31 cent to $1.6443 gallon, a more-than-one-year low on the spot continuation chart. Despite healthy gasoline demand, inventory is up 18.5 million bbl, or 8.8%, against a year ago.

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

(CZ)

Brian Milne