Crudes, ULSD Futures Up Early Tuesday

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

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the Intercontinental Exchange Brent contract moved mixed, with the gasoline contract down and West Texas Intermediate, Brent and ULSD moving higher on concern over supply availability for the balance of the year as U.S. sanctions target Iranian oil exports and an explosion at a Canadian refinery heightened anxiety over low distillate stocks in the U.S. Northeast as the heating season is about to begin.

Irving Oil on Monday said there was a “major incident” at its 320,000 bpd St. John refinery in News Brunswick, Canada, following an explosion and a fire that reports indicate occurred at the refinery’s diesel hydrotreater that forced the plant to shut. Part of the refinery was already shut for seasonal turnaround. Irving said it’s too soon to know how long the refinery would remain shut. The St. John refinery ships more than half of its output to the U.S. Northeast.

The outage comes as distillate stocks in New England states are down 1.026 million bbl or 12.2% against year ago at 7.363 million bbl. Early weather forecasts expect a cold, early start to winter this season.

Earlier Tuesday, International Energy Agency Executive Director Fatih Birol told Bloomberg the global oil market is facing a challenging fourth quarter, and urged the Organization of the Petroleum Exporting Countries to produce more. Those comments, which come ahead of Friday’s IEA monthly Oil Market Report, follow an interview last week with Saudi Arabian Crown Prince Mohammed Bin Salman in which the heir apparent said Saudi Arabia was producing near a record high at 10.7 million bpd, and could lift production to 12.0 million bpd if necessary.

The expected supply tightness comes amid declining Venezuelan crude production that at a little more than 1.2 million bpd in August is the lowest output rate since the 1940s outside of a major strike in 2002-2003, and falling Iranian oil exports. U.S. sanctions on Iran’s oil exports take effect Nov. 4, and are expected to further pressure Iran’s oil sales that are estimated to have peaked in April at about 2.5 million bpd. Iran’s oil exports are estimated at 1.5 or 1.6 million bpd for September, and are expected to decline by another 400,000 to 500,000 bpd later this year.

The National Hurricane Center at 8 AM ET said Hurricane Michael has strengthened to a Category 2 status, and is seen intensifying to a Category 3 hurricane just before it makes landfall along the Florida Panhandle Wednesday morning. The Bureau of Safety and Environmental Enforcement on Monday reported approximately 19.07% of the current oil production and 11.09% of the natural gas production in the Gulf of Mexico has been shut-in ahead of the storm.

The International Monetary Fund late Monday released its world economic outlook, with the Washington, D.C. headquartered organization revising down the world growth rate 0.2% for this year and 2019 to 3.7% for both years from its previous forecast in April.

“The downward revision reflects surprises that suppressed activity in early 2018 in some major advanced economies, the negative effects of the trade measures implemented or approved between April and mid-September, as well as a weaker outlook for some key emerging market and developing economies arising from country-specific factors, tighter financial conditions, geopolitical tensions, and higher oil import bills,” said IMF.

IMF continues to expect that the U.S. economy would grow 2.9% this year versus a 2.2% expansion in 2017, although revised lower the annual growth rate for 2019 by 0.2% to 2.5%.

The U.S. dollar strengthened to a seven-week high in index trading overnight.

At 9 AM ET, NYMEX November WTI futures were up $0.54 at $74.83 bbl, with ICE December Brent gaining $0.73 to $84.64 bbl, and to a nearly $10 bbl premium against the U.S. benchmark.

NYMEX November ULSD futures were 1.22 cents higher at $2.4064 gallon, with November RBOB futures down 0.31 cents at $2.0906 gallon. RBOB widened its loss to 1.7 cents at last look.

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Brian Milne