Oil Futures End Choppy Trade Mixed

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and the Brent contract on the Intercontinental Exchange next to expire settled a choppy session mixed.

West Texas Intermediate and Brent cut gains after testing recent highs ahead of a weekend meeting by the Organization of the Petroleum Exporting Countries in Algiers that has become politically charged. Attendees will consider pumping more oil to offset export losses by fellow member Iran because of U.S. sanctions.

WTI and Brent futures each traded a penny shy of recently traded multi-month highs before cutting their advance, as the market contemplates multiple scenarios on how U.S. sanctions on Iran will effect global oil supply in the fourth quarter amid expected strong demand. The International Energy Agency expects crude runs at global oil refineries will exceed August's 83.5-million-barrel-per-day (bpd) record high in December with an input rate of 84.5 million bpd.

Iranian oil exports have already tumbled 900,000 bpd from April to 1.6 million bpd this month, according to media reports, as an initial round of U.S. sanctions took effect in early August. Another 500,000 bpd decline is expected later this year by some market followers when a more significant second round of sanctions take effect in early November that directly target Iran's oil exports and its banking sector.

OPEC and 10 non-OPEC oil producers aligned with the cartel in a production agreement will consider their quotas as they discuss tightening global oil supplies even as U.S. oil production is at an 11.0 million bpd record high and Russian output at 11.3 million bpd, topping the 2016 post-Soviet high. Saudi Arabia produced a strong 10.412 million bpd in August, down from June's 10.489 million bpd output rate.

The lost Iranian oil exports join flagging production from Venezuela, with some market followers calculating that the South American OPEC member could see output drop 250,000 bpd by year's end.

Russia, which leads the non-OPEC contingency, is reportedly set to recommend a 1.0 million bpd hike in their collective production rate. However, only a few Gulf States, Saudi Arabia and Russia are seen capable of mustering greater production. Russian energy minister Alexander Novak has said Russia could add 300,000 bpd in oil output.

The IEA estimates OPEC has about 2.7 million bpd of spare production capacity, with 60% located in Saudi Arabia. The limited supply cushion is fertile ground for price rallies.

Iran has blasted any talk of an OPEC production increase, with the country's oil minister promising to veto any proposal that lifts their output. He called the meeting political.

Brent crude futures topped $80 barrels (bbl) to trade at $80.12 before quickly slipping back under the $80 bbl mark, a price the Saudis said they would be comfortable with, while the prospect of oil at $80 bbl triggered a tweet from U.S. President Donald Trump on Thursday that oil prices are too high. On Sept. 12, Brent traded at an $80.13 bbl four-month high on the spot continuous chart.

At settlement, ICE November Brent crude futures were up $0.10 at $78.80 bbl, and gained $0.71 on the week.

NYMEX November WTI futures raced up to a $71.80 bbl intraday high, which compares with Thursday's $71.81 10-week spot high established by the now expired October contract. November WTI futures settled up $0.46 at $70.78 bbl on the session, and advanced $1.79, or 2.6%, on a spot continuous basis from prior Friday.

NYMEX October ULSD futures settled down 0.2 cent at $2.2260 gallon, reversing off a $2.2625 one-week high, while up 1.68 cents on the week.

NYMEX October RBOB futures rallied to a $2.0524 2-1/2-week high, but cut the daily gain to a fractional 0.25 cent with a $2.0171 gallon settlement. Against prior Friday, RBOB futures rallied 4.69 cents, or 2.4%.

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

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Brian Milne