CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and Brent crude on the Intercontinental Exchange settled mostly higher on the session while down from prior Friday, with volatility slowing this afternoon following active trading earlier in the week on Tropical Storm Gordon and mixed supply data, while concern over demand growth reemerged amid trouble in emerging markets and an escalating trade war between the United States and China.
Oil futures lost value from prior Friday, with the crude grades first rallying to two and three-month highs in reaction to Tropical Storm Gordon, only to reverse those gains as the storm did little to disrupt oil operations outside of briefly shutting in 9% of the Gulf of Mexico's oil production on Tuesday. The jump in crude prices lifted the ULSD contract to a 3-1/2 year high.
Delayed supply data from the Energy Information Administration released Thursday prompted additional selling, instigated by an unexpected build in gasoline stocks for the week-ended Aug. 31 that highlighted the conclusion of summer and peak demand for gasoline. Lower gasoline consumption will also reduce demand for crude by U.S. oil refiners.
Softer crude demand in the coming weeks, with demand to again ratchet up in the fourth quarter, was also met with news of higher oil production in August by Saudi Arabia while Russian output held near July's 21-month high. Russian crude production is projected to expand in September following the completion of field work. Meanwhile, the EIA shows U.S. crude production holding near an 11.0 million bpd all-time high.
International Energy Agency Executive Director Fatih Birol said trouble in emerging economies could dent global oil demand growth, although noted that IEA still sees supply tightness later this year. Atop of those worries, U.S. President Donald Trump said Friday that he is moving ahead with tariffs on $200 billion in Chinese goods, adding another $267 billion in tariffs is ready to go should China choose to retaliate. An escalating trade war between the world's two largest economies could stunt global oil demand.
Those concerns were offset to a degree by a strong U.S. economy, with data released this week showing ongoing growth in the manufacturing and services sectors, while the Department of Labor reported 201,000 new jobs were added to the U.S. economy in August. Wages also improved, increasing the odds for a hike in the federal funds rate that would likely strengthen the U.S. dollar, which has an inverse relationship with domestic oil. The Federal Reserve meets Sept. 25-26, with a market consensus overwhelmingly anticipating a 25 basis point increase in the key borrowing rate currently at 1.75%.
NYMEX October West Texas Intermediate futures settled down 2 cents at $67.75 bbl, paring a decline to a fresh two-week low at $66.86, while down $2.05 of 2.1% from prior Friday. WTI futures rallied to a two-month high on the spot continuation chart of $71.40 on Tuesday.
ICE November Brent crude ended an inside trade session 33 cents higher at $76.83 bbl, although the contract is down from a $79.72 better-than three-month spot high traded on Tuesday. On a spot month basis, Brent crude is down 59 cents from prior Friday, when the October contract expired.
Brent crude settled at a $9.08 bbl 11-1/2 week high premium to WTI futures. NYMEX October ULSD futures settled up 0.91 cents at $2.2182 gallon, reversing off a fresh two-week spot low of $2.1907 gallon after trading at a 3-1/2 year spot high of $2.3093 on Tuesday. On the week, spot ULSD futures are down 2.31 cents.
NYMEX October RBOB futures consolidated within Thursday's trade range, which included a move to a 5-1/2 month low on the spot continuous chart at $1.9260, settling up 1.9 cents at $1.9700 gallon. On the week RBOB futures on a spot continuous basis tumbled 17.37 cents or 8.1% following the September contract's expiration prior Friday. The expiration reflects the transition from peak gasoline demand during the summer months to less costly to produce winter grade gasoline and slowing consumption patterns.
Brian L. Milne can be reached at email@example.com
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