Brent Futures End Above $80

CRANBURY, N.J. (DTN) -- Brent futures on the Intercontinental Exchange ended above $80 bbl for the first time in nearly four years Monday, spiking $2.40 to settle at $81.20 bbl, with the upside breakout following a decision by the Organization of the Petroleum Exporting Countries to maintain their production targets despite calls for an output hike in the face of declining Iranian oil exports amid U.S. sanctions.

Nearest delivered oil futures on the New York Mercantile Exchange rallied alongside the international crude price marker, with West Texas Intermediate jumping $1.30 to settle at $72.08 bbl—the highest settlement on the spot continuous chart since July 10. Brent's premium to WTI increased $1.10 to a $9.12 bbl 1-1/2 week high, with the wide arbitrage a strong market signal for foreign buyers to procure U.S. crude. During the four weeks ended Sept. 14, Energy Information Administration data shows U.S. crude oil exports averaged 1.871 million bpd, up 1.182 million bpd or 172%.

Based on comments from major trading companies, climbing U.S. barrels in the global oil market still won't be enough. Separately, a high-ranking oil official with Iran said Saudi Arabia and Russia won't be able to cover the projected supply shortfall, as both countries have less of a supply cushion than is being advertised.

Hossein Kazempour Ardebili, Iran's OPEC governor, told Reuters Saudi Arabia and Russia were unable and unwilling to add more production at short notice, with those comments following Sunday's meeting in Algiers between OPEC and a contingent of 10 non-OPEC oil producing nations led by Russia.

During their meeting OPEC said conformity with their 2016 production agreement was 129% in August, equal to cutting 600,000 bpd more than their quota because of lost Iranian oil exports amid an initial round of U.S. sanctions and falling Venezuelan crude production. Members agreed to lift output to their agreed to level.

Saudi Arabia said it could add another 1.5 million bpd of oil to the market, but that extra supply is not currently needed. Separately, a Wall Street Journal report said Saudi Arabia has sold out of its Arab light crude for October, while pushing sales or its Arab medium and heavy grades.

Speaking Monday at the Asia Pacific Petroleum Conference in Singapore, Reuters quoted Daniel Jaeggi, president of Mercuria Energy Trading, saying Iranian sanctions on U.S. oil that take effect in early November could remove nearly 2.0 million bpd of supply from the market by year's end, and crude prices could reach $100 bbl. Also speaking at the conference, Ben Luckock, co-head of oil trading at Trafigura, said as the market tightens crude oil prices could reach $90 bbl by Christmas and $100 bbl by New Year. Separately, J.P. Morgan said in a market outlook crude prices would likely reach $90 bbl in the coming months.

Adding to the geopolitical risk premium in oil prices, Tehran blamed the United States for an attack on a military parade in Iran over the weekend that killed 25. On Wednesday, U.S. President Donald Trump will chair a Security Council meeting where he is expected to target Iran for its adventurism in the Middle East. The president is in New York Monday discussing the world drug problem, and on Tuesday he will address the general assembly.

NYMEX October ULSD futures settled at its highest point on the spot chart since late May at $2.2859 gallon, up 5.99 cents, ahead of the October contract's expiration Friday afternoon. NYMEX October RBOB rallied to its highest settlement in September at $2.0547 gallon, up 3.76 cents.

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

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