Oil Futures End Mixed

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent crude on the Intercontinental Exchange settled shallowly mixed on Monday. The gasoline contract ended down, while Brent edged back over $80 bbl after settlement on the possibility the United States would sanction Saudi Arabia for the death of Saudi dissident and journalist Jamal Khashaoggi.

President Donald Trump said after speaking with Saudi Crown Prince Mohammed bin Salman he was not satisfied with Saudi Arabia's explanation that Khashaoggi was killed in the Saudi's consulate in Istanbul, Turkey, during a fistfight on Oct. 2, according to reports. Earlier in the day, White House adviser Jared Kushner said the Trump administration was still in the fact-finding phase.

Over the weekend, U.S. senators from both parties said they were insulted by the Saudi response, and some called for U.S. sanctions. U.S. sanctions on the kingdom, an important strategic ally for the United States in its efforts to change Iran's provocative behavior through sanctions, could prompt Saudi Arabia to hold back oil production at a time when global oil demand is expected at a record high 100 million bpd.

The International Energy Agency expects the decline in Iranian oil exports, which dropped 800,000 bpd since the United States in May announced it was withdrawing from the Iranian nuclear accord that automatically reinstituted U.S. sanctions, to September to accelerate next month. Saudi Arabia has the majority of the world's global spare capacity, which was estimated at a low 2% in September.

Arguably looking to control the fallout from the crime, Saudi Arabian Energy Minister Khalid al-Falih said in a lengthy interview with the TASS Russian News Agency that Saudi production increased 200,000 bpd from September to 10.7 million bpd now, which is up about 800,000 to 900,000 bpd since May. He also reaffirmed Saudi Arabia's capability of producing 12.0 million bpd if necessary, and said the United Arab Emirates have another 200,000 bpd of oil they can bring to market.

ICE December Brent settled up $0.05 at $79.83 bbl.

NYMEX November West Texas Intermediate futures expired $0.05 higher at $69.17 bbl, reversing off a five-week spot low of $68.27, with the December contract settling at a $0.19 premium to the now expired contract at $69.36 bbl. WTI futures is now in a contango market amid growing domestic stocks.

The U.S. dollar, which has an inverse relationship with WTI futures, rallied to a two-week high today.

WTI futures have dropped back sharply since early October when it rallied to a $76.90 bbl four-year high on the spot continuous chart amid worry over a tightening global supply-demand balance. However, U.S. commercial crude stocks have increased 20.5 million bbl in just three weeks to a 416.4 million bbl 3-1/2 month low, with a year-on-year deficit narrowing from 75.0 million bbl on Sept. 21 to 40.1 million bbl on Oct. 12.

Additional crude supply might be realized in early November when Plains All American is expected to start service on an expanded Sunrise Pipeline, which connects Midland, Texas, to Cushing, Oklahoma. The expanded pipeline adds as much as 500,000 bpd of capacity.

It is hoped the pipeline will ease the bottleneck out of the Permian basin, where crude production has grown more slowly recently due to constrained takeaway capacity.

NYMEX November ULSD futures settled up 1.61cts at $2.3181 gallon, and NYMEX November RBOB futures pared a decline to a $1.8783 7-1/2 month low on the spot continuous chart with a $1.9067 gallon settlement, down 0.72cts.

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

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Brian Milne