Oil Futures Mixed on Tuesday

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and the Intercontinental Exchange Brent contract were mixed following reports Saudi Arabia is prepared to acknowledge that missing journalist Kamal Khashoggi was killed in the Saudi consulate in Istanbul, Turkey, after an interrogation went awry.

The latest development in the Khashoggi case follows meetings between U.S. Secretary of State Mike Pompeo and Saudi King Salman and Crown Prince Mohammed bin Salman on Monday. Pompeo was quickly dispatched to Saudi Arabia by U.S. President Donald Trump after the Saudis implied they would use oil as a weapon if the United States slapped sanctions on the kingdom, which Trump said he would do if an investigation determined that the Saudi government ordered Khashoggi's murder.

Khashoggi was a self-exiled Saudi citizen and dissident and reporter for the Washington Post that was critical of the Saudi ruling family. Reports indicate he was lured from the United States to Turkey, and was last seen entering the consulate on Oct. 2.

The incident unfolded three weeks before U.S. sanctions on Iranian oil exports take effect, with the United States depending on the Saudis to boost production to offset lost Iranian oil barrels. The diplomatic row had heightened the geopolitical risk premium in global crude prices, which jumped more than $1 barrel (bbl) Sunday night following a thinly veiled threat by the Saudis. Crude prices dropped back as the Saudis tamped down their rhetoric.

The International Energy Agency estimates Iran's oil exports have dropped 800,000 barrels per day (bpd) from April to September, which followed the U.S. pullout of the Iranian nuclear accord in May. IEA expects Iran's oil exports to drop further as the Nov. 4 start date for sanctions takes effect.

IEA said since April, major oil producers led by the Saudis, Russia and the United States have added a net 1.4 million bpd to the world oil market. The agency said those barrels will be needed as demand is expected at a record high 100 million bpd during the current fourth quarter.

Despite the expected record high world consumption rate for the remainder of 2018, oil demand growth is seen slowing because of high oil prices that is having an adverse knock-on effect to world economic growth. A U.S.-China trade dispute is seen further slowing world economic growth.

Thursday night, China is expected to report a 0.1% decline in third quarter gross domestic product annualized growth to 6.6%, while the International Monetary Fund projects China's economy would expand annually by 6.5% this year and by 6.3% in 2019. China will also report on industrial production for September Thursday night, with market consensus eyeing a 6.0% annual increase, down 0.1% from August.

Tuesday morning, data showed U.S. industrial production increased a more-than-expected 0.3% in September from August, with manufacturing up an as expected 0.2% for the month.

The U.S. dollar weakened to a two and a half week low in index trading, while the Dow Jones Industrial Average is up nearly 300 points in early trading following heavy losses over the previous week.

At last look, Nymex November West Texas Intermediate futures were flat near $71.75 bbl with the ICE December Brent contract little changed near $81.75 bbl. Nymex November ULSD futures were down about 0.25 cents near $2.3235 gallon and the November RBOB futures contract advanced 1.3 cents to near $1.9575 gallon.

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

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Brian Milne