Oil Futures Settle at Multi-Week Highs

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

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange settled the final session of the third quarter at multi-week highs, spurred on this week by an agreement by the Organization of the Petroleum Exporting Countries to cut production, with market watchers also following the progress of Hurricane Matthew as it moves through the Caribbean Sea.

Short covering in front of the afternoon expiration of the NYMEX October ULSD and RBOB futures contracts added to the upside for oil products.

NYMEX oil futures also registered sharp gains on the week, up 8.0%, although ending the third quarter little changed from June 30.

NYMEX October ULSD futures expired at a $1.5279 gallon three-month high on the spot continuation chart, up 1.77 cents on the session and rallying 12.06 cents or 8.6% on the week. November ULSD futures settled up 1.92 cents at $1.5383 gallon while up 12.08 cents or 8.5% on the week in the contango market.

NYMEX October RBOB futures expired 2.06 cents higher at a $1.4874 gallon five-week spot high, and rallied 11.05 cents or 8.0% on the week. November RBOB futures gained 2.1 cents on the session and 10.74 cents or 7.9% on the week with a $1.4631 gallon settlement in the seasonally backwardated market.

Although held to inside trade, November West Texas Intermediate crude futures settled at a $48.24 bbl six-week high on the spot continuation chart, up 41 cents on the session and $3.76 or 8.5% on the week.

The advance to a six-week settlement high came despite a seven rig jump in the U.S. oil rig count for the week ended today. There are 425 oil rigs operating in the United States, the most since mid-February.

November Brent crude futures on the IntercontinentalExchange expired down 18 cents at $49.06 bbl, while $3.17 or 6.9% higher than prior Friday. The December Brent contract settled up 38 cents at $50.19 per barrel (bbl) in the contango market, the first settlement above $50.00 bbl since Sept. 8 by the second nearest delivered contract. The December contract advanced $3.71 or 8.0% from prior Friday.

After several hours of talks in Algiers, Algeria, on Wednesday, ministers representing the 14 member countries of the Organization of the Petroleum Exporting Countries reached consensus that a production cut is necessary to rebalance an oversupplied global oil market, targeting an output range between 32.5 million and 33.0 million barrels per day (bpd). The production range reflects a reduction from August output of 235,000 to 735,000 bpd.

Details are to be worked out at OPEC's biannual meeting in Vienna on Nov. 30 when the production cuts would take effect. The lack of detail and the delay in implementation of the production cuts capped the upside. Moreover, the supply cuts follow an OPEC output rate at an eight-year high, while some members of the cartel have a weak history of compliance.

The National Hurricane Center forecasts the potential for Hurricane Matthew to move into the eastern Gulf of Mexico, although NHC noted wide variance in their models. The forecasters said it was too early to know if the hurricane would affect Florida, or turn into the Gulf of Mexico, with the greatest probability for a track east of Florida that could threaten states in the Mid-Atlantic.

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

(CZS)

Brian Milne