Oil Finishes Monday Higher

OLD BRIDGE, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and front month Brent crude on the Intercontinental Exchange settled higher Monday, with West Texas Intermediate and Brent consolidating within Friday's trade range and NYMEX oil products registering fresh highs ahead of their September contract expirations at week's end.

Oil futures again advanced on concern over supply after recent news and comments from U.S. National Security Advisor John Bolton that U.S. sanctions on Iran are having a greater effect than previously expected, with reports indicating Iranian oil exports declined by roughly 700,000 bpd during the first half of August.

Many doubted reimposed sanctions on Iran would have a big effect since countries in Europe disagreed with the U.S. pullout of the nuclear accord and suggested they would not honor the sanctions. So too said Iran's biggest oil buyers, China and India.

However, Iranian oil exports are on track to fall more than the 1.0 million bpd, and some analysts think could drop as much as 1.5 million bpd after the second round of sanctions take effect in November that target Iran's oil exports. The first round of sanctions took effect on Aug. 6.

It also follows news that China's Unipec would return to buying U.S. crude oil in October after no purchases were made for August or September due to a trade dispute between the United States and China. Some suggested China would snub the United States because of the trade dispute, and take advantage of a desperate seller in Iran.

The decision by Unipec to resume U.S. oil purchases also suggests Chinese and U.S. officials believe they can reach an agreement and avoid an escalation in their trade dispute that could slow economic growth and demand for oil.

"There's certainly a lot of rhetoric in the market right now, but we have to remember that demand is going to fall precipitously over the next several weeks with the end of the summer driving season and the beginning of fall refinery turn-arounds, so, we're talking about headlines and chatter that's trying to prop up the market typically at its lowest point in the season," said Stephen Schork, president of Villanova, P.A.-based Schork Report.

Gasoline demand consistently declines in September from August, with this weekend's Labor Day holiday the unofficial end to peak driving demand. During the fall shoulder months, refiners will shut units for seasonal maintenance, slowing U.S. refiner appetite for crude that reached a near record weekly high in August at 18.0 million bpd, with the refinery run rate at 20-year highs for two weeks straight through Aug. 17, data from the Energy Information Administration shows.

"The bulls will surely face some uphill hurdles as we head into the weakest point of the season," said Schork, also noting 11.0 million bbl of crude from the U.S. Strategic Petroleum Reserve is expected to hit the market in October and November.

NYMEX October WTI futures settled up $0.15 at $68.87 bbl with the ICE October Brent contract ending $0.39 higher to $76.21 bbl, widening its premium to a more than two-month high at $7.34 bbl.

NYMEX September RBOB futures traded at a $2.0955 better-than two-week high, settling up 1.17 cents at $2.0896 gallon, and at a more than 10.0 cents premium to the October contract that settled at $1.9867 gallon. NYMEX September ULSD futures traded at a $2.2192 gallon fresh six-week high on the spot continuous chart, settling up 1.27 cents at $2.2149 gallon. October ULSD futures settled 1.28 cents higher at $2.2206 gallon.

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