CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures and Brent futures on the Intercontinental Exchange front month contracts ended Wednesday's trade down, as a sharp advance over the Labor Day holiday ahead of landfall by Tropical Storm Gordon Tuesday night was erased, with the storm shutting-in about 9% of Gulf of Mexico's oil production.
Oil futures breezy courtship with Tropical Storm Gordon over the Labor Day holiday ended early Tuesday, well in advance of the storm's landfall at the Alabama-Mississippi border Tuesday evening. The storm did, however, rally prices for West Texas Intermediate and Brent to monthly highs and ULSD to a 3-1/2 year high.
Lower closing values come ahead of the American Petroleum Institute's supply report for the last week of August due out at 4:30 p.m. EDT, with an expected build at the Cushing supply hub exerting pressure on WTI futures even as market estimates eye a 2.75 million barrel (bbl) draw from commercial stockpiles.
Cushing inventory had fallen to minimum operating levels estimated between 16.0 million and 22.0 million bbl in early August, but have since increased from the 21.8 million bbl more than 45-month low to 24.3 million bbl, data from the Energy Information Administration shows. Genscape reported a more than 750,000 bbl build took place at the Oklahoma tank farm last week, the delivery location for NYMEX WTI futures.
Since peaking in mid-May at 438.1 million bbl, U.S. commercial crude inventory has declined 32.3 million bbl or 7.4% through Aug. 24, according to EIA data. The steep drawdown comes despite record domestic oil production last shown at 11.0 million barrels per day (bpd), as strong demand from U.S. refiners and overseas buyers facilitated the decline.
The market expects the summer's strong drawdown in crude stocks to end in the coming weeks amid seasonal refinery maintenance following the conclusion of peak gasoline demand during the summer months.
Market estimates the refinery run rate to have slipped from 96.3% of capacity to 95.9% during the week-ended Aug. 31, with gasoline stocks expected to have been drawn down 1.2 million bbl. The market eyes a modest build in distillate fuel stocks.
The EIA will publish its weekly data set at 11 a.m. EDT Thursday.
NYMEX October RBOB futures slumped to a five-month low on the spot continuation chart at $1.9550 gallon, unwinding the summer gasoline premium, and leaving a 4.52 cents seasonal gap on the spot chart from the expired September contract's $2.1076 Aug. 31 low to Tuesday's $2.0624 high by the October contract.
Analysis shows gasoline demand consistently declines in September from August.
NYMEX October RBOB futures settled down 2.94 cents at $1.9648 gallon, with the modest backwardation through January delivery narrowing.
NYMEX October ULSD futures settled down 2.02 cents at $2.2345 gallon. While down, ULSD futures have limited resistance up to $2.30, with the spot month contract trading at $2.3093 gallon Tuesday.
NYMEX October WTI futures settled down $1.15 at $68.72 bbl. A stronger U.S. dollar exerted pressure on WTI futures, with the greenback near Tuesday's two-week high in index trading against a basket of currencies.
ICE November Brent futures settled down $0.90 at $77.27 bbl, although widened its premium to WTI futures to an $8.55 bbl 11-week high.
News swirling in markets indicates Saudi Arabia would like oil prices to hold between $70 and $80 bbl, a price level that boosts revenue, but not too high to arouse agitation from U.S. President Donald Trump ahead of midterm elections in November.
Brian L. Milne can be reached at firstname.lastname@example.org
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