Oil Higher in Early Trade

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange (ICE) were mostly higher Monday in early trade following news of an extended outage at Suncor's 360,000 barrels per day (bpd) Syncrude unit in Alberta, where a June 20 transformer trip caused the unit to shut for an expected six weeks.

The outage will be extended the company reported Monday, with treated products from the 360,000 bpd plant potentially reduced by 30% to 40% through early to mid-September as ongoing repairs at three coking units are completed and the company evaluates the performance of additional yearly maintenance tasks to remove spent coking fuel at one of the units while it remains offline.

"We have a very tight, nervous market right now, and we're one headline away from a major price spike in oil," said Phil Flynn, senior market analyst with Chicago-based Price Futures Group. "The extended Syncrude outage, which has driven supplies in Oklahoma to 3-1/2-year lows, could continue to be supportive of prices," he said.

Crude stocks at Cushing, Oklahoma, the delivery location for the West Texas Intermediate (WTI) futures contract, have been drawn down for seven straight weeks through June 29 to 27.8 million bpd, the lowest stock level at the closely watched supply hub since December 2014. Working stocks at Cushing are at 35.5% of capacity.

"With substantial drawdowns expected to be reflected at Oklahoma, the market is going to be the tightest we've seen in years," Flynn said, projecting supply reports from the American Petroleum Institute (API) and Energy Information Administration (EIA) could show a sizable draw in U.S. crude inventories. EIA reported U.S. commercial crude stocks were drawn down 18.8 million barrels (bbl) in June.

Additionally, supply disruptions from Venezuela, Libya, and Iran have depleted spare oil capacity globally, with Saudi Arabia expected to hoist output to a record high near 11.0 million bpd this month, up about 500,000 bpd from June and 1.0 million bpd from May, in helping to address the lost supply.

While economic collapse in Venezuela continues to reduce the once prolific producer's output, and civil war in Libya has violently reduced exports from the North African nation, lost Iranian crude exports are accelerating amid re-imposed U.S. sanctions on Iran that take effect Nov. 4. U.S. President Donald Trump expects countries buying Iranian oil supply to reduce their purchases to zero, although a U.S. official has since said waivers would be considered.

On the products side, RBOB gasoline was higher, reversing off Friday's lower settlement, on rising crude prices and reported increases in implied demand for gasoline up 137,000 bpd to a near record weekly high of 9.869 million bpd during the final week of June. ULSD futures also reversed higher amid rising distillate demand, reported up 514,000 bpd to 4.126 million bpd, according to weekly data through June 29 from the EIA.

Near 9 a.m. ET, the NYMEX August WTI futures contract was 19 cents lower at $73.99 bbl, while ICE September Brent was 72 cents bbl higher at $77.83 bbl. NYMEX August RBOB contracts were 2.46 cents higher at $2.0849 gallon, while the August ULSD contract climbed 2.58 cents to $2.1942 gallon

Brian Whary can be reached at brian.whary@dtn.com