Oil Products Mixed Ahead of Expiries

OLD BRIDGE, N.J. (DTN) -- New York Mercantile Exchange September West Texas Intermediate rallied through $70 bbl to a higher settlement on recent supply drawdowns. September Brent futures on the Intercontinental Exchange settled just below $75 bbl amid heightened geopolitical risk ahead of its expiry Tuesday, with RBOB and ULSD futures ending mixed in front of the August contracts' expiration Tuesday afternoon.

NYMEX September WTI futures led Monday's advance, with the Energy Information Administration last reporting domestic commercial crude stocks at a nearly 3 1/2 year low at 404.9 million bbl, 16.2% below year prior, while supply at Cushing, Oklahoma, dropped to a three-year, nine-month low of 23.7 million bbl. Trade sources note at this stock level, 30.6% of working capacity, Cushing stocks are at minimum operating levels.

Demand for U.S. crude is strong domestically and globally amid a robust U.S. economy and involuntary production losses by several oil producers, and the threat to shipping in waterways important to oil shipments.

Last week, Houthi rebels who are in a years-long civil war in Yemen and fighting a Saudi coalition attacked two Saudi tankers in the Bab al-Mendeb Strait in the Red Sea that prompted Saudi Arabia to temporarily suspend shipping through the strait. Along Saudi Arabia's eastern coastline, Iran has threatened to disrupt oil shipments through the Strait of Hormuz should its oil exports slide with U.S. sanctions. Iran backs the Houthis, but won't acknowledge the arrangement.

In Venezuela, oil production has plunged to decade lows amid years of mismanagement, with the seizure of assets in the Caribbean by ConocoPhillips after Venezuela nationalized its assets years ago seen accelerating the decline. The most recent data shows Venezuelan crude production just below 1.4 million bpd in June, widely expected to slide below 1.0 million bpd by the end of the year.

Media reports indicate Venezuelan President Maduro is considering rationing gasoline supplies as the country further descends into chaos following continued years of mismanagement and as inflation spirals out of control. The International Monetary Fund recently forecast inflation in Venezuela would reach one million percent.

Saudi Arabia increased production in July to 10.5 million bpd to help offset supply losses in Venezuela and elsewhere. Russia is also hiking output to counter tightening supply in the global market.

NYMEX WTI September futures gained $1.44 to a $70.13 bbl settlement, holding a more than $1 bbl premium to the October contract. ICE September Brent settled up 68 cents at $74.97 bbl with the October contract at a better than 50 cents premium to the expiring September contract.

NYMEX August RBOB futures settled down a fractional 16 points at $2.1603 gallon in front of Tuesday's contract expiry, with the September contract up a marginal four points to $2.1132 gallon. NYMEX August ULSD futures settled up 1.58 cents at $2.1710 gallon, while September delivery ended with a 0.55 cents premium to the expiring contract.

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