NYMEX Oil Futures End Down

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures swung lower Monday as a powerful hurricane targets the East Coast, while the front month Brent contract on the Intercontinental Exchange settled higher following reports that Iran completed a facility to build nuclear centrifuges less than two months ahead of the start of U.S. sanctions on Iranian oil exports.

The National Hurricane Center at noon Eastern Time said Hurricane Florence strengthened to Category 4 status, with maximum sustained winds at 130 mph, situated 1,985 miles southeast of Cape Fear, North Carolina. Forecasters expect Florence to reach a wind speed of 150 mph before making landfall Thursday night or early Friday along the East Coast.

Hurricane Florence will effect shipping lanes along the East Coast this week, and have an adverse effect on gasoline demand as we approach end week amid expected business, government and school closings along parts of the populous Atlantic coastline.

"In anticipation of Hurricane Florence, Colonial is preparing for potential impacts later this week," said Colonial Pipeline in a bulletin to shippers this afternoon. "The current projected path of the hurricane includes South Carolina, North Carolina and Virginia." The Colonial Pipeline ships oil products from Houston, Port Arthur and Lake Charles refineries northeast, running through states in the Southeast to its end point in Linden, New Jersey.

Hurricane Florence follows Tropical Storm Gordon over the Labor Day weekend, with Gordon briefly shutting-in 9% of the oil production in the Gulf of Mexico. Hurricanes Isaac and Helene are also churning in the Atlantic Ocean, with late August, early September the peak period for hurricanes in the Atlantic Basin.

NYMEX October RBOB futures settled down 1.08 cents at $1.9592 gallon, last week trading at a $1.9260 better-than 5-1/2 month low on the spot continuation chart, unwinding its summer premium.

"Buyers of spring gasoline should now pay particular attention to RBOB prices. Strong demand could act as a break on gasoline price sell-offs this winter, moving the optimal time for getting long earlier than usual," said Alan Levine, chairman of Washington-based Powerhouse.

Energy Information Administration data shows gasoline supplied to the market averaging 9.388 million bpd during the first eight months of 2018, up 125,000 bpd or 1.3% against the comparable year-ago period. NYMEX October ULSD futures settled flat, down four points, at $2.2178 gallon, and October West Texas Intermediate futures ended trade $0.21 lower at $67.54 bbl.

In contrast, ICE November Brent futures settled up $0.54 at $77.37 bbl, with its premium to WTI futures widening to a nearly three-month high at $9.83 bbl.

Iran's completion of a facility to build advanced nuclear centrifuges is not a surprise. Ali Akbar Salehi, Iran's head of the Atomic Energy Organization, said in June the country was close in completing the facility. The concern is, that with the facility's completion, does Tehran exit the 2015 nuclear accord and begin enriching uranium?

The United States pulled out of the accord in May, reimposing an initial round of sanctions on Iran in early August, with sanctions targeting Iran's oil exports and banking sector set to take effect on Nov. 4. U.S. sanctions have already forced a reduction in Iranian oil exports, which are estimated to have declined by 800,000 bpd this month from June's 2.3 million bpd export rate.

The United States wants Iran to end its pursuit of an atomic bomb and its provocation in the Middle East that is said to have destabilized the region.

Iran remains in the accord, as it considers an economic package from Europe aimed at offsetting U.S. sanctions.

This week, U.S. Energy Secretary Rick Perry is to meet with officials from Russia in Moscow to push the Kremlin to pump more oil to offset lost barrels due to the Iranian sanctions. U.S. officials are also pressuring Saudi Arabia to lift their output, while the United States will release 11.0 million bbl of oil from the Strategic Petroleum Reserve in October and November following a successful auction of the strategic barrels in late August.

Brian L. Milne can be reached at brian.milne@dtn.com

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