Oil Ends Mixed Amid Seasonal Factors

Nearest delivered oil futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled mixed Thursday after holding to mostly narrow trade ranges, as oversold market conditions limited gains for ULSD and Brent futures even as bullish sentiment spurred by strong demand underpinned a move to fresh highs by the contracts.

The November West Texas Intermediate crude contract ended marginally lower in its debut as nearest delivery, although settled at a fresh four-month high on the spot continuation chart, while the October RBOB contract settled at a one-week low amid seasonal pressure and a decline in implied demand for the second week of September reported Wednesday.

Oil futures continue to find upside support from early month upward revisions in world oil demand expectations for this year and improving compliance by the Organization of the Petroleum Exporting Countries with their production agreement. Moreover, ongoing lost output from Texas refineries since late August due to Hurricane Harvey has sharply drawn down U.S. oil product inventories, an event that the International Energy Agency sees hastening a global oil supply-demand rebalance.

The modest daily changes Thursday also come in front of Friday's meeting in Vienna by the Joint Ministerial Monitoring Committee--a five member committee of OPEC and non-OPEC oil producing countries that will review compliance by the 24 countries participating in an agreement cutting their production.

"Oil ministers from Iraq and Nigeria are suggesting that OPEC and non-OPEC may further cut their output quotas by another 1% to their 1.8-million-barrel cut. While Russian Energy Minister Alexander Novak has said there is no official proposal to cut, he is interested in working with OPEC and other oil producers to stabilize crude prices," said Chicago-based Phil Flynn, senior market analyst with the PRICE Futures Group.

The meeting also follows discussions that OPEC and non-OPEC are considering extending their production agreement, which took effect Jan. 1, three months beyond the March 2018 termination date or to the end of 2018.

The IEA said OPEC production declined in August for the first time in five months, while non-OPEC producers had a better than 100% compliance rate with their output cuts of 558,000 bpd.

Early Thursday, The Wall Street Journal, citing Kuwait's oil minister, Essam al-Marzouq, said OPEC and non-OPEC countries topped 100% compliance with their agreement in August. During his comments, he doused speculation that the committee would discuss an extension of the production agreement at Friday's meeting.

Domestically, Texas refineries continue to ramp up from Hurricane Harvey forced outages, with IHS Markit estimating 15 of the 20 refineries affected by the storm at or near normal operating rates as of Tuesday.

"IHS Markit estimates that around 1.0 million b/d of distillation capacity (5% of US total) is still offline," said the company. Genscape this afternoon said there are six refineries in the Houston, Beaumont and Port Arthur area that have multiple units offline or are completely shut. They include Petrobras' 100,000 bpd Pasadena refinery, Valero's 90,000 bpd Houston refinery, Shell's 340,000 bpd Deer Park refinery, Motiva's 600,000 bpd Port Arthur refinery, Total's 225,000 bpd Port Arthur Refinery, and ExxonMobil's 350,000 Beaumont refinery. In a news release this afternoon, ExxonMobil said its 560,500 bpd Baytown and Beaumont refineries "have begun producing fuels at reduced rates and that crude oil and refined product pipelines in the Gulf and other regions of Texas have restarted as recovery continues from Hurricane Harvey."

"We are making good progress safely restoring our operations to pre-storm levels," said Jerry Wascom, president of ExxonMobil Refining and Supply Company. "We have brought in gasoline, diesel and jet fuel from other regions to supplement our own production to ensure a quick return of reliable supply to our customers."

The Energy Information Administration on Wednesday reported crude inputs at U.S. refineries surged 1.094 million bpd during the second week of September amid the recovery along the Texas coastline. That follows a 3.647 million bpd plunge in crude inputs to 14.078 million bpd during the week-ended Sept. 8 from a 17.725 million bpd record high during the week-ended Aug. 25.

While Tropical Storm Jose continues a northern path towards Martha's Vineyard, Hurricane Maria currently appears to be tracking away from the Gulf of Mexico.

"Maria is expected to turn gradually north-northwestward to north-northeastward by the end of the forecast period, keeping it over the waters of the western Atlantic after moving by the Turks and Caicos Islands and the southeastern Bahamas," said the National Hurricane Center late morning. NHC said while the storm has weakened since ravaging Puerto Rico, it is forecast to remain a hurricane for the next five days.

NYMEX November WTI futures settled down 14cts at $50.55 bbl, although at a fresh four-month high settlement of the spot continuous chart amid the contango market structure, with WTI reversing down from a fresh four-month intraday high of $50.81 bbl late morning.

U.S. dollar strength could impede the upward path for WTI futures following the Federal Open Market Committee's decision Wednesday to begin unwinding $4.5 trillion on its balance sheet in October after several years of monetary stimulus while signaling a hike in the federal funds rate is coming in December. The U.S. dollar, which has an inverse relationship with WTI futures, weakened today following Wednesday's rally on the Fed's decision to a one-week high.

November Brent crude futures on ICE settled up 14cts at $56.43 bbl, the highest settlement on the spot continuous chart since Feb. 23, and closing at a $5.88 bbl premium to WTI. Brent's backwardated market structure is seen increasing buying interest for the futures contract.

NYMEX October ULSD futures settled up 0.83cts at $1.8153 gallon, marking a fresh nearly two-year, three-month high settlement on the spot continuous chart. Distillate fuel supply has been drawn down a steep 10.3 million bbl from Aug. 25 to Sept. 15 EIA shows, with forward supply cover sliding to 34.1 days, a six-week low.

NYMEX October RBOB futures settled down 1.13cts at a $1.6438 gallon one-week low. EIA reported a 178,000 bpd drop in implied demand to 9.441 million bpd during the second week of September.

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