NYMEX Oil Futures End Shallowly Mixed

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled shallowly mixed Monday afternoon with West Texas Intermediate crude near flat for a second session. RBOB futures edged up slightly while the ULSD contract dropped 1.1% after a choppy session.

NYMEX October WTI came under technical pressure after testing resistance at $50.42 with a $50.33 intraday high, again slipping below the $50 psychological level while holding below Thursday's (9/14) 3-1/2 month high on the spot continuation chart of $50.50 bbl.

"It was a choppy session today," said Phil Flynn, an analyst at Price Futures, and he echoed other analysts' comments that market traders were jockeying for position ahead of expiration of the October WII contract on Wednesday (9/20).

"There are still uncertainties about the refining capacity that's still not back online in the Gulf Coast ... it can take weeks for any storm impact to work through the system," said analyst Tom Bentz at ABN AMRO in New York. "Moreover, we just heard that Galveston Bay refinery had an upset this morning, and Hurricanes Jose and Maria are making people nervous. That's not good -- especially Maria which some [computer] storm tracking models are showing could go to the Gulf Coast."

Analysts said the crude oil market is drawing support from Texas coast refineries that are ramping up runs after resuming operation in the aftermath of Hurricane Harvey. However, they also pointed to oil data issued last week by the International Energy Agency showing a global oil market surplus is shrinking as demand increases, especially in the United States and Europe.

The agency reported oil production declined last month globally as well as by the Organization of the Petroleum Exporting Counties, with OPEC compliance with an agreement to cut production by 1.2 million bpd improving in August. OPEC and 10 non-OPEC oil producing countries agree to reduce their output by nearly 1.8 million bpd, with the agreement taking effect on Jan. 1. Led by Saudi Arabia, OPEC along with non-OPEC members are in talks to extend those cuts by three months to June 2018.

Bentz said the middle distillates market is responding to the expected increase in production of refined products as recovery in Texas after Harvey continues.

"ULSD is getting pulled back because of the expected higher refinery runs that will lead to more products," Bentz said. "But if you look at the RBOB market today, you also see a wide spread ... backwardation is wide again at 5.2cts today after narrowing last week to 3cts. That's because the ULSD selloff was overdone. Now, people are buying again because there are still some issues out there, and more storms are coming."

Tight shale oil production at seven key U.S. oil plays is projected to climb 79,000 bpd in October to 6.083 million bpd, the Energy Information Administration said this afternoon in its monthly Drilling Productivity Report.

EIA sees a six-rig decline to 572 in the Permian from September to October, and a 49-rig drop at Eagle Ford to 1,026, with production at the Bakken in North Dakota forecast to increase by 8,000 bpd to 1.058 million bpd, where the number of active wells is seen climbing 12 to 1,204.

NYMEX October WTI crude settled 2cts higher at $49.91 bbl, the highest settlement since July 31, with the November contract settling down 9cts at $50.35 bbl. November Brent crude on the ICE platform fell 14cts to $55.48 bbl, ending at a $5.57 bbl premium to WTI.

NYMEX October ULSD futures dropped 1.92cts to a $1.7796 gallon settlement while October RBOB futures edged up 0.69cts to $1.6686 gallon.

George Orwel can be reached at george.orwel@dtn.com