Oil Higher in Monday Trade

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and the front month Brent contract on the Intercontinental Exchange moved higher in early trading Monday following Friday's mixed session, reversing off overnight lows as the market eyes a tightening global oil supply-demand disposition.

The move higher follows last week's volatile trading, with early reports suggesting lost demand for oil products due to Hurricane Florence will be less than previously anticipated. Hurricane Florence did cause a spike in gasoline demand ahead of its landfall Friday amid mandatory evacuations from the Carolina coastlines.

Monthly oil outlooks from the Energy Information Administration, Organization of the Petroleum Exporting Countries and the International Energy Agency released last week all cautioned that global oil demand could be adversely affected over the next several months by slowing economic growth, as emerging markets contend with high debt loads and a U.S.-China trade war escalates.

Reports indicate U.S. President Donald Trump is set to announce another $200 billion in U.S. tariffs on Chinese imports will go into effect which comes atop of $50 billion currently in place. The threat comes even as Washington proposed talks with Beijing in an effort to avert another round of tariffs. Reports indicate Beijing might skip the proposed talks, while Trump earlier this month indicated he was prepared to go all-in, indicating tariffs on another $267 billion on Chinese goods have been identified. Combined, the total represents the full face value of Chinese imports to the United States.

China's Shanghai Composite Index is down sharply, trading at a four-year low. The Dow Jones Industrial Average edged lower although trading above 26,000 with the S&P 500 Index down slightly at 2,900.

The U.S. dollar weakened in index trading against a basket of currencies, lending upside support for West Texas Intermediate.

Record world oil production in August of more than 100 million barrels per day (bpd) including a big jump in OPEC oil output according to the IEA weighed on oil futures late last week. IEA highlighted OPEC production at 32.63 million bpd, with output gains by Saudi Arabia, Iraq, Libya and Nigeria offsetting lower production by Venezuela and Iran.

Venezuelan oil production is expected to continue to decline amid the country's economic collapse, potentially falling another 200,000 bpd by year's end from output of 1.235 million bpd in August. U.S. sanctions on Iran's oil exports take effect in early November that are seen limiting the barrels of Iranian oil from reaching the world market. OPEC reported Iran's crude oil production averaged 3.584 million bpd in August, a 27-month low. Iran is again storing oil on tankers as U.S. sanctions tighten, a strategy deployed during previous U.S. sanctions from 2012 through 2015.

U.S. Energy Secretary Rick Perry said late last week after meeting his Saudi Arabian and Russian counterparts that the world's three largest oil producers would work together to avoid shortages later this year. On Friday, Baker Hughes reported U.S. oil rigs increased seven during the week to an 867 42-month high.

Still, output in Libya and Nigeria remain volatile, while global spare capacity is limited. Reports indicate OPEC spare capacity is below 2.0 million bpd.

Near 9 a.m. ET, Nymex October WTI futures were up $0.57 at $69.56 barrel (bbl) ahead of the contract's expiration on Thursday, with the November contract trading at a roughly $0.25 discount in the backwardated market. ICE November Brent futures were also up $0.57 at $78.66 bbl.

Nymex October ULSD futures were 1.42 cents higher at $2.2234 gallon, with the October RBOB futures contract up 2.59 cents at $1.9961 gallon.

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

(BE)

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