WTI, ULSD Futures Settle Higher

NEW YORK (DTN) -- New York Mercantile Exchange spot-month West Texas Intermediate crude and ULSD futures settled higher alongside Brent on the Intercontinental Exchange as reports of armed conflict in Iraq's northern oil-producing Kirkuk area spurred concern over potential disruptions to output.

RBOB futures bucked the uptrend, giving up early gains and settling lower on seasonal fuel switching from gasoline to distillates, said Houston-based analyst Kyle Cooper at ION Energy.

Others agreed.

"The RBOB pullback was seasonal, and it weighed on the overall market, but on the whole demand for gasoline is still strong relatively, and refiners continue to produce more, as you can see refinery runs were up last week," said analyst Phil Flynn at Price Futures in Chicago.

On crude, Flynn said the market rallied on tension heightened by the skirmishes between Kurdish and Iraqi forces in Kirkuk, but gave back some of the early gains since there were no disruptions.

"We are still bullish in terms of supply and demand dynamics," Flynn added, citing the backwardated price structures for ULSD, RBOB and Brent.

Early this morning, the Iraqi military said their forces gained control of Kirkuk airport, North Oil Company and Baba Gurgur oil fields located just outside of the Kirkuk city after hours-long clashes with Kurdish forces.

Iraq's oil ministry also said Kirkuk oil output remained uninterrupted, but the incident raised fear over potential disruption to oil supply from the region. Kirkuk accounts for 200,000 bpd of the 600,000 bpd in production from oilfields in northern Iraq claimed by the Kurds, and 500,000 bpd of that oil supply is exported to Europe by pipeline via Turkey's Ceyhan seaport on the Mediterranean.

The Kurdish regional government and Iraqi central government have been at loggerheads over the sharing of oil revenue from the northern oil fields, but tension between them escalated after the Sept. 28 Kurdish referendum that was opposed by Baghdad.

The conflict added to the already elevated geopolitical tension stirred late last week after President Donald Trump on Friday refused to certify that Iran complied with the 2015 nuclear agreement, kicking the issue to Congress.

Congress has 60 days to review the issue and could re-impose sanctions that were lifted in 2015 as part of the deal, which included a promise by Iran to suspend its controversial nuclear program. Such a move by Congress would effectively kill the deal. Iran has threatened to respond.

Since sanctions on Iran were lifted, their production has increased sizably, with secondary data showing oil output from the Islamic Republic has climbed to 3.827 million bpd in September from 2.836 million bpd in 2015, data from the Organization of the Petroleum Exporting Countries shows.

Oil futures were also supported by strong demand in China, with Chinese oil imports for September surging 12% year-on-year to 9.04 million bpd. Domestically, a report by oil services firm Baker Hughes, Inc. detailed another weekly slowdown in drilling activity in the United States, while the Energy Information Administration showed U.S. production fell by 81,000 bpd during the first week of October to a 9.48 million bpd one-month low.

NYMEX November WTI crude futures settled 42cts higher at $51.87 bbl, paring an advance to a better than two-week high of $52.37. December Brent crude on the ICE platform was 65cts higher at a $57.82 bbl settlement, off a two-week high of $58.47. Brent settled at a $5.95 bbl premium over WTI, a one-week high.

NYMEX November ULSD futures climbed 1.59cts to a $1.8129 gallon settlement, easing of a $1.8314 better than two-week high. November RBOB futures surged to $1.6463 gallon better than two-week high before reversing 0.53cts lower to a $1.6169 gallon settlement.

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