CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and the Brent crude front-month contract on the Intercontinental Exchange settled mixed with a downside bias Friday. Crude grades gained on the week and product contracts softened during volatile trading in reaction to a bevy of economic data, production updates, supply outlooks and a massive hurricane that faded in strength as the week wore on.
Against the multitude of data points released this week and a slow-moving hurricane in the Atlantic Ocean, the overarching theme driving oil futures is a tightening global market amid declining exports in Iran and Venezuela and evolving views on growth in world oil demand amid the specter of a U.S.-China trade war.
Hurricane Florence remained at category 1 strength with maximum sustained winds of 75 mph this afternoon, with the center of the hurricane moving "slowly westward toward the North Carolina-South Carolina border," the National Hurricane Center said in a 3 p.m. EDT update. The National Weather Service said the hurricane had dropped 15.56 inches of rainfall in eastern North Carolina, with the eye of Florence making landfall at 7:15 a.m. EDT at Wrightsville Beach with maximum sustained winds of 90 mph.
The former category 4 hurricane had raised concern over potential pipeline disruptions, but those fears faded as the storm's intensity declined. The 2.6 million bpd Colonial Pipeline said it maintained a normal flow of gasoline and distillate fuels on the system all week, with the pipeline connecting the Gulf Coast refinery center to markets in the heavily-populated Mid-Atlantic States, ending at Linden, New Jersey.
Separately, Texas Governor Greg Abbott declared a disaster in southeast Texas today due to flooding in Houston and Galveston.
Hurricane Florence did cause a spike in gasoline demand amid mandatory evacuation orders for 1.5 million in the affected areas, with a run on the fuel triggering outages at a string of retail outlets in the Carolina states. Yet, hurricanes can also dampen demand as people hunker down, flights are cancelled, and businesses close.
Oil futures encountered selling on news of a jump in oil production by the Organization of the Petroleum Exporting Countries in August reported by OPEC and the International Energy Agency in their monthly outlooks, which more than offset slowing output from Venezuela and Iran.
U.S. Energy Secretary Rick Perry, fresh off meetings with the oil ministers from Saudi Arabia and Russia this week, said the United States, Russia, Saudi Arabia and OPEC are coordinating policy to avoid a price spike later this year. Oil markets are expected to tighten in the fourth quarter when global demand peaks seasonally, as U.S. sanctions target Iranian oil exports. Meanwhile, Venezuelan oil production continues to decline by about 50,000 bpd monthly amid the South American country's economic collapse.
In their Short-Term Energy Outlook released Tuesday, the Energy Information Administration revised down U.S. oil production expectations amid takeaway capacity restraints in the prolific Permian Basin, boosting oil prices. Friday's Baker Hughes report showed a seven-rig increase in the number of oil rigs in operation this week to a three-year, six-month high at 867, pressured WTI futures after its 1 p.m. EDT release, although the contract brushed off the weakness.
WTI's discount to Brent, hovered around $10 bbl at midweek -- the widest spread since mid-June -- underpinned WTI futures on sentiment that the wide arbitrage would stimulate U.S. crude exports that had slowed over the summer.
Ongoing U.S. economic growth and supportive data from China on industrial output and retail sales suggest ongoing growth in oil demand. China is also seen buying oil to add to its Strategic Petroleum Reserve.
A trade war between the world's two largest economies could stunt that growth, and the Federal Reserve did say businesses were slowing investment as a result. Those worries were fanned Friday on reports that U.S. President Donald Trump wants $200 billion in tariffs on Chinese goods imported to the United States to take effect despite Washington's proposal for new talks with China. Prior to Friday, Trump said he had another $267 billion in tariffs ginned up.
Nonetheless, consumers are optimistic. The University of Michigan's Consumer Sentiment Index surged well above market consensus in early September, up from 96.2 in August to 100.8, with expectations for an increase to 97.0. The reading is the second highest since 2004, with the index reaching 101.4 in March.
"Consumers anticipated continued growth in the economy that would produce more jobs and an even lower unemployment rate during the year ahead," said Richard Curtin, chief economist of the index.
NYMEX October WTI futures reversed off a $67.94 bbl, three-day low after hitting support, to settle up $0.40 on the day and $1.24 on the week at $68.99 bbl. ICE November Brent crude futures eased $0.09 on the session, while gaining $1.26 on the week with a settlement at $78.09 bbl. NYMEX October ULSD futures trimmed a decline to a $2.1935 gallon, one-week low after hitting support, settling down 1.43cts at $2.2092 gallon, while down 0.9cts from the prior Friday. NYMEX October RBOB futures moved a penny off a three-day low to settle down 2.27cts at $1.9702 gallon, while flat on the week.
Brian L. Milne can be reached at firstname.lastname@example.org
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