Oil Futures Surge on Large Crude Draw

OLD BRIDGE, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and Brent crude on the Intercontinental Exchange rallied into Wednesday’s close, posting large daily gains on a greater-than-expected drawdown in U.S. commercial crude supply and comments from U.S. National Security Adviser John Bolton on Iranian sanctions.

“I think the effects, the economic effects certainly, are even stronger than we anticipated,” said Bolton who was speaking in Israel, according to Reuters. Bolton also said the United States is “going to do other things to put pressure on Iran,” reported Reuters, without offering specifics.

The United States reimposed sanctions on Iran after pulling out of the 2015 nuclear accord, which are being phased in. Earlier this month, U.S. sanctions on Iran’s ability to buy U.S. dollars and gold took effect, with sanctions on Iranian oil exports and banking set to take effect on Nov. 4.

Analysts gauge U.S. sanctions could cut Iranian oil exports by 1.0 million bpd or more. Iranian crude production is already slowing, falling to a 20-month low at 3.737 million bpd in July.

“I think the big news today (Wednesday) was the larger-than-expected crude draw from the EIA,” said Elaine E. Levin, president of Washington, D.C.-based Powerhouse, a commodity hedge and trade advisory.

Midmorning data from the Energy Information Administration showed U.S. crude stocks declined a larger-than-expected 5.8 million bbl to 408.4 million bbl compared to estimates for a 2.0 million bbl decline. Commercial crude stocks were drawn down as imports plunged 1.5 million bpd to a 7.518 million bpd six-week low.

The crude draw came despite the return of U.S. oil production to a record high at 11.0 million bpd. U.S. refiner demand remains strong, with refinery crude inputs at 17.892 million bpd, the second highest rate of 2018 while refiners operated at 98.1% of utilization for a second week running—a 20-year high.

On its first day as the front month contract, NYMEX West Texas Intermediate settled up $2.02 at $67.86 bbl, posting a $68.15 one-week spot high in late trade. ICE October Brent crude futures settled up $2.15 at $74.78 bbl and near a three-week high at $75.00.

NYMEX September RBOB futures settled at a $2.0680 gallon two-week high, trading as high as $2.0746 intraday. NYMEX September ULSD futures settled up 4.47 cents at $2.1683 gallon, and near a $2.1768 one-week high.

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