Oil Futures Mixed; WTI at 6-Week High

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures with nearest delivery ended mixed, with West Texas Intermediate advancing for the fourth consecutive session while topping $50 bbl in intraday trade for the first session in a month on expectations for strong demand for crude as refineries hard hit by Hurricane Harvey continue to ramp up operations.

Data released Wednesday by the Energy Information Administration shows crude inputs at U.S. refineries tumbled to 14.078 million bpd during the week ended Sept. 8, which is 2.66 million bpd less than the 2017 average through Aug. 25 and 3.647 million bpd lower than crude inputs during the week ended Aug. 25.

NYMEX October ULSD futures settled higher for the third consecutive session, while dropping back from an intraday high of $1.7959 gallon after testing resistance at week prior's $1.7983 26-month high on the spot continuation chart. ULSD futures were again supported by a drop in distillate production at U.S. refineries and on strong overseas demand along with seasonal strength.

EIA data shows distillate production plunged to a seven-year low at 3.973 million bpd during the week ended Sept. 8, with output down 1.082 million bpd or 21.4% from the week ended Aug. 25.

NYMEX October RBOB futures again backpedaled, settling lower for the third consecutive session on easing supply worry, as distribution terminals continue to be resupplied following outages in late August and early September due to Hurricane Harvey. Gasoline is also being resupplied to Florida following Hurricane Irma, with Marine Log reporting the arrival of three petroleum tankers at Port Everglades on Tuesday with 18 million gallons of gasoline.

EIA on Wednesday reported forward gasoline supply cover dropped to a 22.8-day two-year low during the first full week of September.

The early transition to winter grade gasoline RVP specifications this month helped ease the supply crunch caused by hurricanes Harvey and Irma, while gasoline imports are expected to surge in the coming weeks. Moreover, strong crack spreads have incentivized refineries to ramp up runs, which plunged after Hurricane Harvey knocked offline or sharply reduced operations at 20 refineries in Texas. Thirteen of those refineries are confirmed to have returned to normal operations, and at least five other refineries were ramping up runs. Despite moving into the fall turnaround season, a number of operators are seen delaying maintenance amid the supply tightness and robust margins.

NYMEX October RBOB futures settled down 1.86cts at $1.6287 gallon, with the market's backwardation through January 2018 delivery easing. The October contract's premium to November delivery narrowed 1.5cts today to 3.2cts gallon at settlement.

NYMEX October ULSD futures settled up 0.9cts at $1.7775 gallon. ULSD futures are in seasonal backwardation through June 2018 delivery, with the calendar spreads widening today.

NYMEX October WTI futures rallied to a $50.50 bbl 3-1/2 month high on the spot continuation chart before dropping back at the close to settle 59cts higher at $49.89 bbl--a 1-1/2 month high settlement. A settlement above $50 bbl would trigger buy orders.

NYMEX October WTI futures slightly narrowed its discount to November Brent crude futures on the Intercontinental Exchange for the fourth straight session to a still wide $5.58 bbl. On Sept. 8, Brent's premium to WTI widened to a $6.30 bbl two-year high.

ICE November Brent crude futures rallied to a $55.99 bbl five-month high on the spot continuation chart, and closed higher for the fourth consecutive session at a $55.47 five-month high, up 31cts.

Oil futures again found support from Wednesday's Oil Market Report from the International Energy Agency, which boosted its expectations for year-on-year world oil demand growth for 2017 by 100,000 bpd to 1.6 million bpd, while forecasting global refinery throughput at a quarterly record high of 80.9 million bpd for the fourth quarter.

IEA also reported improving compliance by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil-producing countries with their agreement reducing production by nearly 1.8 million bpd. OPEC production declined in August for the first time in five months to 32.67 million bpd, while non-OPEC compliance topped 100% last month.

A drop in Libyan crude production in August was the chief factor in lower OPEC production in August, while security threats in the North African nation and in southern Iraq along with the chaos in Venezuela are seen limiting OPEC production in the near term. OPEC and non-OPEC are also negotiating a three-month extension to their production agreement through June 2018.

IEA, in their monthly oil report, said the global oil market continues to rebalance, and that the lost production from Hurricane Harvey could erase a surplus in oil product supply against the five-year average held by the Organization for Economic Cooperation and Development, last measured at 35 million bbl at the end of July. The 35-country OECD had a surplus in crude stocks of 155 million bbl on July 30.

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

(AG)

Brian Milne