Oil Softens in Early Trade

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 front month Brent contract on the Intercontinental Exchange softened in early trade Wednesday, with the crude and ULSD contracts consolidating within Tuesday's trade ranges ahead of supply data for the first week of the fourth quarter and monthly short-term market outlooks even as a massive hurricane in the Gulf of Mexico intensifies.

The National Hurricane Center said Hurricane Michael strengthened to Category 4 status ahead of anticipated landfall at the Florida Panhandle Wednesday afternoon. The growing hurricane has prompted production shut-ins of 670,800 barrels per day (bpd) of oil and 726 MMcf/d of natural gas in the Gulf of Mexico through early Tuesday, according to the Bureau of Safety and Environmental Enforcement. The Louisiana Offshore Oil Port LLC halted operations at their offshore crude terminal, which can load or unload as much as 2.0 million barrels (bbl) of oil. The hurricane and shutdown of the LOOP are likely to reduce U.S. crude exports this week.

On Tuesday, crude futures advanced following comments from Fatih Birol, executive director of the International Energy Agency, who warned that the "oil markets are entering the red zone" in an interview with Bloomberg. Birol urged the Organization of the Petroleum Exporting Countries and other major producers to pump more oil now, with the global supply-demand balance very tight in the current fourth quarter when IEA expects world oil demand at a record high 100.3 million bpd.

Late Monday, Reuters estimated Iran's oil exports fell 500,000 bpd from September to 1.1 million bpd during the first week of October, and on current pace, would slip below 1.0 million bpd for the month. Export rates can fluctuate wildly, but the trend of declining Iranian oil exports are expected to continue during the fourth quarter as a second phase of U.S. sanctions take effect Nov. 4. Ahead of the U.S. pullout of the Iranian accord in early May, Iran's oil exports are estimated to have peaked in April at 2.5 million bpd.

In the U.S. Northeast, the potential two to three month loss of a hydro-treater at Irving Oil's 320,000 bpd St. John refinery in New Brunswick, Canada, could underpin higher diesel and heating oil spot values, with the refinery shipping more than half of its output to the region. On Monday, Irving Oil reported an explosion and fire that might have occurred in the hydro-treater, with the incident prompting the full shutdown of the refinery that was partially closed amid seasonal turnaround.

As of Sept. 28, distillate supply in New England stood at 7.363 million bbl, down 1.026 million bbl or 12.2% against year ago, data from the Energy Information Administration shows.

Near 10 a.m. ET, Nymex November West Texas Intermediate futures were down about $0.65 near $74.30 bbl, with the ICE December Brent contract $0.75 lower near $84.25 bbl. Nymex November ULSD futures were 1.4 cents lower near $2.4095 gallon, and November RBOB futures were down 2.25 cents near $2.0525 gallon.

The market awaits the Short-term Energy Outlook from the EIA due out at 12 p.m. ET, and weekly data statistics from the American Petroleum Institute at 4:30 p.m. ET. The Organization of the Petroleum Exporting Countries will release its monthly outlook and update OPEC production data in a report set for release Thursday morning, with the EIA weekly statistical data set due out at 11 a.m. ET Thursday. The IEA will publish is monthly outlook Friday morning.

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

(BAS)

Brian Milne