Brent Crude Spikes to 4-Yr High

CRANBURY, N.J. (DTN) -- Brent crude on the Intercontinental Exchange spiked to a nearly four-year high on the spot continuous chart overnight and nearest delivered oil futures on the New York Mercantile Exchange surged to multi-week highs after global oil producers attending a meeting in Algiers on Sunday declined to lift oil production above agreed to output rates despite declining oil exports from Iran amid U.S. sanctions.

The Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producing countries aligned with OPEC in a pact reducing their oil production now in its 21st month declined to lift output above targets set in late 2016, instead agreeing to meet the target.

Following a meeting by the Joint OPEC-non-OPEC Ministerial Monitoring Committee, officials said conformity with their 2016 production pact was 109% in July and 129% in August, 600,000 bpd more than the 1.8 million barrels per day (bpd) reduction from their October 2016 output rates that determined the quotas. The over compliance is primarily a result of a steep decline in production in Venezuela, and falling exports from Iran. The International Energy Agency reports Iranian oil exports at 1.9 million bpd in August, down 500,000 bpd from April.

The committee again said an agreement was reached to increase output to the level set by the 2016 Vienna agreement.

“The Committee urged countries with spare capacity to work with customers to meet their demand during the remaining month of 2018,” said the JMMC. “Furthermore the JTC was directed to study the 2019 outlook and present options on 2019 production levels to prevent market imbalance.”

From April to August, IEA shows Saudi Arabia increased production by 500,000 bpd and output by Russia, the leader of the non-OPEC contingency, was up 250,000 bpd. OPEC spare capacity was 2.69 million bpd in August, down 780,000 bpd, with most of that buffer supply located in Saudi Arabia.

Over the weekend, the Wall Street Journal said Saudi Arabia is running low on its most popular Arab light crude, and that supplies for October have been fully allocated. Customers are being offered its medium and heavy crudes.

Oil futures were also higher as the geopolitical risk premium in global oil prices increased following an attack on a parade in Iran that killed 25 people, with Tehran blaming the United States. Separately, U.S. President Donald Trump will attend the United Nations General Assembly this week where he is scheduled to lead a debate on Iran.

Overnight, U.S. tariffs on $200 billion of Chinese goods at a 10% rate took effect, while China cancelled trade talks with the United States until Washington stops threatening the country according to reports.

Major equity indices were lower in early trading Monday after the Dow Jones Industrial Average and the S&P 500 Index reached record highs on Friday. The U.S. dollar softened early Monday although holding above Friday’s 10-week low ahead of this week’s two-day meeting by the Federal Open Market Committee.

Officials with the Federal Reserve are widely expected to lift the federal funds rate 25 basis points as it continues to normalize monetary policy. The federal funds rate, which serves as a baseline for setting interest rates on mortgages, automobiles, credit cards, is now at 1.75% to 2.0%.

Nymex November West Texas Intermediate futures were up $1.40 at $72.18 barrel (bbl) shortly after 9 a.m. ET, trading near a $72.39 better-than 10-week high on the spot continuous chart. ICE November Brent crude futures were $1.75 higher at $80.55 bbl, and near an $80.94 three-year, 10-month high on the spot chart.

Nymex October ULSD futures were 4.35 cents higher at $2.2697 gallon, trading near a $2.2781 gallon 3-1/2 week high ahead of contract’s expiration on Friday. October RBOB futures were up 3.35 cents at $2.0506 gallon, paring an advance to a $2.0650 gallon 3-1/2 week spot high. ULSD futures are in seasonal contango and RBOB futures in seasonal backwardation.

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

(BE)

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