Oil Futures Settle Near Highs

Oil Futures Settle Near Highs

OLD BRIDGE, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and the spot-month Brent contract on the Intercontinental Exchange rallied to multi-week highs Friday and registered hefty gains on the week. Worries over global oil supply availability re-emerged, while a planned strike by oil workers in the North Sea next week added to Friday's upside push by Brent.

Domestically, the Energy Information Administration on Wednesday reported a larger-than-expected 5.8 million bbl decline in U.S. commercial crude stocks during the week ended Aug. 17, while imports plunged 1.5 million bpd, refuting the previous week's large build on a jump in imports. The large draw came as U.S. refiner demand for crude remains strong, with crude inputs easing from a near record high to 17.892 million bpd, the second highest input rate of 2018. Refineries operated at a 20-year high 98.1% of capacity for a second week.

Crude supply at the Cushing tank farm in Oklahoma did build for a second week through Aug. 17 to 24.218 million bbl after falling for 12 straight weeks to minimum operating levels estimated between 16.0 million and 22.0 million bbl, raising the threat of lifting restrictions.

U.S. crude production returned to a record high at 11.0 million bpd, although some see slowing growth at the prolific Permian Basin in western Texas and eastern New Mexico. Baker Hughes reported this afternoon a nine-rig decline in the U.S. oil rig count for the week ended today to a three-week low at 860.

Hawkish comments midweek from U.S. National Security Advisor John Bolton regarding Iran joined overnight news that China's Unipec, the trading arm of Sinopec, would resume buying crude from the United States in October following no purchases for two months amid a trade dispute between the two world powers. Expectations were China would snub the United States because of the trade dispute, and increase its purchase of Iranian oil in defiance of U.S. sanctions. China will still buy Iranian oil.

Bolton said U.S. sanctions on Iran are having a greater-than-expected effect on the country's economy. U.S. sanctions are being phased in, with a first round taking effect in early August, and a second round in early November that include sanctions on Iran's oil exports.

Media reports estimate Iranian oil exports dropped between 600,000 and 700,000 bpd during the first half of August from July.

In addition to lost export barrels from Iran, production declines in Venezuela and unstable output rates in Libya spurred buying today.

NYMEX October West Texas Intermediate futures settled up $0.89 at $68.72 bbl, edging off a $69.31 two-week high on the spot continuous chart. WTI futures are up $2.81 or 4.3% from prior Friday on a spot continuous basis, with the September contract expiring Tuesday.

ICE October Brent crude futures rallied to a $76.42 bbl six-week high on the spot continuous chart, settling up $1.09 at $75.82 bbl, while advancing $3.99 or 5.6% on the week. Brent's premium to WTI widened to a $7.10 bbl two-month high at settlement.

NYMEX September RBOB rose 1.87cts to $2.0779 gallon, trimming an advance to a $2.0888 two-week high, while up 9.7cts or 4.9% on the week. The October contract gained 2.02cts at settlement to $1.9753 gallon, up 9.12cts from prior Friday.

NYMEX September ULSD futures settled 2.68cts higher at $2.2022 gallon, paring an advance to a $2.2175 gallon six-week high on the spot continuous chart, while up 10.4cts or 5.0% on the week. October ULSD futures settled up 2.71cts at $2.2078 gallon, while 10.5cts higher on the week.

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