Oil Moves Higher 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 delivery and the Brent contract on the Intercontinental Exchange moved higher in early trading following Tuesday's steep sell-off and ahead of the weekly release of supply data from the Energy Information Administration, with the market expecting a build in crude inventory and supply drawdowns for distillates and gasoline.

Late Tuesday afternoon, the American Petroleum Institute reported a 9.88 million barrel (bbl) build in commercial crude stocks occurred during the week-ended Oct. 19 that topped market estimates for a 2.5 million bbl increase. If the EIA confirms the API data, it would be the fourth consecutive large build and fifth weekly gain in crude stocks, which ended Oct. 12 at a 3-1/2 month high.

API reported a 2.85 million bbl draw from gasoline stocks for the week profiled compared with an estimate for a 1.5 million bbl decline, and a 2.35 million bbl decrease in distillate supply that was more than a 1.4 million bbl expected decline.

The EIA releases their data at 10:30 a.m. ET.

"Oil prices got slammed [Tuesday] as Saudi Arabia oil minster Khalid Al -Falih suggested that not only will Saudi Arabia step up to "meet any demand that materializes to ensure customers are satisfied" but all other producers should be doing the same. So, in other words, for the first time since the historic OPEC-Non-OPEC agreement went into effect in January of 2017, the Saudi oil minister is saying that there is no OPEC oil quota," said Phil Flynn, senior market analyst with the PRICE Futures Group.

The Saudi minister said oil production by the kingdom has reached 10.7 million barrels per day (bpd), up 200,000 bpd from September, with the Saudis to increase output to 11.0 million bpd. The Saudis said they could lift production to 12.0 million bpd in three months, a level that has never been tested and represents all of the kingdom's spare capacity.

The statement by the Saudi oil minister is unprecedented, coming as the kingdom faces worldwide condemnation for the death of Saudi dissident and Washington Post journalist Jamal Khashoggi, a critic of Crown Prince Mohammad bin Salman, at the Saudi Consulate in Istanbul, Turkey. U.S. Secretary of State Mike Pompeo said the United States revoked the visas of Saudis it believes were involved in his death, and could sanction those responsible for the crime.

The Saudi action offsets lost oil supply from Iran because of U.S. sanctions, with a second phase of U.S. sanctions, sanctions which directly target Iran's oil exports taking effect in less than two weeks. Iran's oil exports were down 800,000 bpd from April to September, and are expected to decline further next month.

Lower oil prices could boost oil demand, with part of the reason for flagging crude prices in mid-October due to signs high oil prices were hurting demand, especially in countries such as India.

In early trading, Nymex December West Texas Intermediate futures were up about $0.35 near $66.82 bbl, gaining even as the U.S. dollar surges to a two-month high. ICE December Brent futures were flat near $76.45 bbl, trading at a $75.11 two-month spot low overnight.

Nymex November ULSD futures were flat near $2.2485 after trading at one-month spot low of $2.2305 overnight. NYMEX November RBOB futures were down 0.75 cents near $1.8300 gallon.

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

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Brian Milne