Oil Futures End Mixed

By George Orwel
DTN Refined Fuels Editor

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled mixed Monday afternoon with West Texas Intermediate crude and RBOB edging higher while ULSD and Brent crude on the Intercontinental Exchange posting moderate losses.

"The strong dollar was holding back the market, but fundamentals are bullish, and so now we are just waiting for [weekly] inventory report," said analyst Phil Flynn at Price Futures.

The dollar strengthened to a two-week high against a basket of six major currencies on expectation President Donald Trump will appoint a hawkish U.S. Federal Reserve Chairman to replace the dovish Janet Yellen.

"Of the three people interviewed for the job, two are hawkish," Flynn said. He added, "But look at the fundamentals: OPEC compliance with their production cuts is fantastic and they are expected to extend the cuts."

OPEC will meet on Nov. 30 to discuss whether to extend the agreement, which requires production cuts of 1.8 million bpd, until the end of 2018. That meeting in Vienna would also mark the first anniversary of the current deal between OPEC and their 10 non-OPEC producer allies, including Russia.

OPEC Secretary General Mohammad Barkindo last week said a consensus was emerging to prolong the cuts, and they will take cues from Russia and Saudi Arabia. He said global supply overhang has fallen since OPEC started cutting production back in January.

Today, Saudi Arabian oil minister Khalid al-Falih, on a visit to Iraq, praised commitment by OPEC members in cutting production in order to support oil prices. His Iraqi counterpart, Jabar al-Luaibi, said Iraq and Saudi Arabia would continue to comply with their supply agreement.

Meantime, oil flows via a pipeline from Iraq's Kurdistan region to the Turkish Mediterranean port of Ceyhan were still less than half the pipeline's capacity. The pipeline was shipping 255,000 bpd, up from 200,000 bpd last week, but below the usual 600,000 bpd, according to reports.

In the United States, oil services firm Baker Hughes, Inc. reported a drop in U.S. drilling activity last week. The report showed the number of oil rigs operating fell by seven to a 736 better than four month low during the week-ended Oct. 20.

The Energy Information Administration also reported last week that U.S. crude oil stocks tumbled 5.7 million bbl and crude production plunged 1.0 million bpd to 8.406 million bpd during the week-ended Oct. 13.

For the week-ended Oct. 20, analysts estimate crude stocks to continued lower, dropping by up to 3 million bbl.

On demand, EIA data for the week-ended Oct. 13 showed U.S. crude inputs fell 819,000 bpd as refinery runs dropped by 4.7% to 84.5%.

Today, a report by Barclays bank highlighted China's strong oil demand. The report said crude stocks were building at a slower pace in China than previously thought.

"If satellite data are accurate and reflective of broader activity in the Chinese oil sector, this is bullish for oil fundamentals because it implies that China's refinery runs and end-use consumption may be understated, and that global balances are tighter than consensus and our own forecasts," said the Barclays report.

The report continued, "Three main factors are driving China's insatiable appetite for crude: declining domestic production, increased access to imports and exports for independent refiners, and building up the strategic petroleum reserve. Yet, implied crude inventory builds may not be completely accounted for in stock levels. Some may be accounted for by higher refinery runs."

NYMEX December WTI crude contract settled up 6cts at $51.90 bbl while ICE December Brent crude contract slipped 38cts to $57.37 bbl, trading at a $5.47 premium to WTI. NYMEX November ULSD futures declined 1.74cts to $1.7878 gallon and November RBOB futures were up 0.02cts at $1.6783 gallon at settlement.

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

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