CRANBURY, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange and the Brent contract next to expire on the Intercontinental Exchange settled shallowly mixed, largely consolidating within Friday's trade range as the mark debates competing factors, including bearish U.S. tariffs and bullish U.S. sanctions.
Aside from the overarching theme that has primarily supported a bullish sentiment, Monday's trading reflected the hangover effect of the former Hurricane Florence, with the storm creating widespread flooding, a weaker U.S. dollar, expectations for higher output in U.S. tight oil fields, and an industry report showing a steep drawdown in crude stocks at the Cushing tank farm in Oklahoma.
Florence's wind speeds were less intense than expected, explained a utility representative, with 85% of the 1.3 million residents that had lost power fully restored. Flooding is intense, reducing motor vehicle traffic amid road closures, with a curfew against driving at night in effect as a safety precaution. Mandatory evacuations last week spiked regional gasoline consumption, although concern over lost demand due to Hurricane Florence has diminished.
This afternoon, the Energy Information Administration projected a 79,000 bpd increase in tight U.S. oil production in October from September to 7.594 million bpd, with 31,000 bpd of that growth generated by the Permian Basin. Production from the Permian, situated in western Texas and eastern New Mexico, is expected at 3.458 million bpd next month.
The EIA outlook follows Friday's Baker Hughes report showing a seven rig gain in the number of active rigs seeking oil in the United States to 867—a three-year, six-month high during the week-ended Sept. 14. The number of oil rigs in the Permian declined by one during the week to a 483 six-week low.
The EIA projection follows a private industry report from Genscape indicating crude stocks at Cushing, the delivery location for the NYMEX West Texas Intermediate futures contract, were drawn down 2.3 million bbl during the week-ended Sept. 14. If realized, that would press Cushing stocks to 21.3 million bbl nearly four-year low, and at minimum operating levels estimated between 16.0 and 22.0 million bbl.
A weaker U.S. dollar also lent upside support for WTI futures, while WTI's discount to Brent was little changed, settling at $9.14 bbl. That's a wide incentive for foreign buyers considering U.S. oil purchases.
Incentivized U.S. crude is seen diminishing the bearish effect seasonal refinery turnarounds typically have on WTI futures, with inventory usually increasing as refiners shut units for maintenance. Refinery maintenance is expected to be light in the Gulf Coast this season following a heavy slate of repairs a year ago in the aftermath of Hurricane Harvey. In contrast, refinery turnarounds are expected to be heavy in the Midwest.
The global pull on U.S. crude is also supported by U.S. sanctions on Iran, with sanctions targeting Iranian oil exports taking effect in early November. U.S. Energy Secretary Rick Perry said last week the world's three largest oil producers—the U.S. Russia and Saudi Arabia—would work together to raise output and avoid a supply shortage in the fourth quarter.
Globally, oil demand spikes in the fourth quarter. And while this seasonal feature remains in place, there are concerns slowing economic growth amid debt trouble in emerging markets and an escalating U.S.-China trade war could stunt demand for oil.
The United States is expected to make an announcement regarding trade policy with China this afternoon, with reports over the weekend indicating U.S. President Donald Trump was set to move ahead with 10% tariffs on $200 billion in Chinese goods. Beijing is said that it would walk away from a U.S. proposed meeting if the United States adds tariffs. Currently, the United States has tariffs on $50 billion in Chinese goods.
NYMEX October WTI futures settled down $0.08 at $68.91 bbl, a $0.23 bbl premium to November delivery in the backwardated market ahead of the October contract's expiration Thursday afternoon.
ICE November Brent end flat, down $0.04 with a $78.05 bbl settlement. NYMEX October ULSD futures settled down 0.28 cents at $2.2064 gallon and the October RBOB contract ended 0.66 cents higher at $1.9768 gallon.
Brian L. Milne can be reached at email@example.com
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