Oil Futures Down on Profit-Taking

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures reversed lower on Tuesday morning amid profit-taking after rallying to fresh highs overnight amid bullish sentiment and geopolitical tension stirred by Monday's independence referendum in Iraq's northern Kurdish region.

Turkey threatened to shut down a pipeline that ships a little more than 500,000 barrels per day (bpd) of oil from northern Iraq to an export terminal in Turkey's port of Ceyhan on the Mediterranean. Turkey is concerned the Kurdish referendum in Iraq would stir separatist sentiment in the Kurdish population in Turkey.

Analysts said stopping Kurdish oil exports would further tighten supply. The global market is on its way to rebalancing due to 1.8 million bpd in output cuts by the Organization of the Petroleum Exporting Countries and their 10 non-OPEC producer allies, OPEC officials said.

A joint OPEC/non-OPEC committee said Friday, Sept. 22, that the compliance rate with their supply agreement rose to 116% in August.

Speculative players have recently been piling up length in oil futures and the Brent rally relative to WTI widened the trans-Atlantic crude arbitrage on Monday.

However, some analysts remain skeptical about further upside for oil prices, citing U.S. oil production that has returned to pre-Hurricane Harvey levels. In addition, the retreat for oil futures indicates that concern over geopolitical tensions is easing, and that there may be a solution to the Kurdish issue.

The Energy Information Administration's statistics for the week-ended Sept. 15 showed a 157,000 bpd, or 1.7%, rise in U.S. oil production to a 9.51 million bpd four-week high, and 1.0 million bpd above the output level seen a year earlier.

An early survey by DTN showed estimates of a 1.0 million barrel (bbl) increase in crude oil inventories for the week-ended Sept. 22, while gasoline and distillates are estimated to have declined by 1.5 million bbl and 2.5 million bbl, respectively.

NYMEX November WTI crude fell 50 cents to $51.72 bbl, reversing off a $52.43 five-month spot high, but continues to trade above $50.42 resistance. November Brent futures fell 81cts to $58.21 bbl and continued to test resistance at $59.59 after posting a 27-month spot high of $59.49 early in the session. The Brent premium over WTI was at a two-year high of $6.49 bbl.

NYMEX October ULSD futures dropped 2.66 cents to $1.8297 gallon, reversing off a near 27-month spot high of $1.8646. October RBOB futures dipped 0.72 cent to $1.7148 gallon, having reversed off a $1.7442 three-week high.

October ULSD, RBOB and Brent futures markets remained in backwardation, which indicates strong short-term demand.

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