Oil Moves Higher on Tuesday

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

CRANBURY, N.J. (DTN) -- Oil futures on the New York Mercantile Exchange moved higher Tuesday ahead of weekly supply estimates to be released later Tuesday afternoon and early Wednesday. Brent crude on the Intercontinental Exchange also advanced amid unsavory revelations that a Saudi citizen, reporter for the Washington Post and critic of Saudi Arabia’s ruling family might have been murdered in the Saudi consulate in Istanbul, Turkey.

Reports earlier Tuesday suggested the Saudis were preparing to acknowledge that Jamal Khashoggi was killed in the consulate during a botched interrogation. Those reports run contrary to tweets sent by U.S. President Donald Trump Tuesday afternoon indicating that he spoke Saudi Arabia’s Saudi Crown Prince Mohammed bin Salman whom denied any knowledge of what took place in Istanbul, and that the heir apparent to the Saudi throne would widen an investigation into the journalist’s disappearance.

Tuesday’s comments follow a bellicose statement from Saudi Arabia on Sunday that threatened to use oil as an economic weapon if the United States placed sanctions on Saudi Arabia. Prior to the statement, Trump had promised sanctions against the kingdom if an investigation found that Saudi Arabia ordered Khashoggi’s execution.

The incident comes at a bad time for Saudi Arabia and the crown prince, whom is seeking foreign investment amid an aggressive plan to modernize the kingdom’s economy. Reports surfaced Tuesday afternoon that a plan by Saudi Arabia to work with Kuwait in the neutral zone that could lead to 500,000 bpd of new production fell apart.

In a broad interview earlier this month, Mohammed bin Salman said the two countries have unresolved sovereignty issues that have endured for 50 years, and that Kuwait wanted them resolved before reaching an agreement with the Saudis to produce in the neutral zone.

These developments come less than three weeks away from the start of U.S. sanctions targeting Iran’s oil exports. The International Energy Agency indicated that Iranian oil exports have dropped 800,000 bpd from April to September, and expects the decline to continue in the fourth quarter.

Oil futures ended mixed trading higher on expectations U.S. commercial crude stocks registered a 1.5 million bbl build during the week ended Oct. 12, which compares with a 6.0 million bbl increase during the previous week and an 8.0 million bbl jump two weeks earlier. Expectations for the smaller build follow production shut-ins in the Gulf of Mexico last week because of Hurricane Michael that reached about 700,000 bpd at one point.

The market also anticipates a 1.2 million bbl draw took place in distillate fuels for the week profiled that would be the fourth weekly decline if realized. Distillate fuel inventory remains below normal, with inventory drawn down 6.6 million bbl since mid-September.

U.S. gasoline supply is estimated to have fallen by 400,000 bbl during the second week of October. Gasoline stocks are at a 236.2 million bbl record high for this time of year, data from the Energy Information Administration shows.

The American Petroleum Institute will issue its weekly supply report at 4:30 PM ET, and the EIA will publish its data set 10:30 AM ET Wednesday.

Despite bloated gasoline supply NYMEX November RBOB futures led Tuesday’s advance, rallying amid oversold market conditions after trading down to a $1.9081 gallon seven-month spot low on Friday (10/12). November RBOB futures settled up 3.3 cents at $1.9773 one-week high.

NYMEX November ULSD futures settled up 1.45 cents at $2.3402 gallon.

NYMEX November West Texas Intermediate settled up $0.14 at $71.92 bbl, with the ICE December Brent contract gaining $0.63 with an $81.41 bbl settlement.

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

(BAS)

Brian Milne