WTI, Brent Gain on Strong Demand

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange West Texas Intermediate and Brent crude on the Intercontinental Exchange advanced Thursday alongside gains by ULSD futures, while the gasoline contract settled at a fresh eight-month low.

Aside from the RBOB contract, which remains under pressure from abundant supply and slimmed down demand during the shoulder period, oil futures were bolstered by data released Wednesday showing strong demand for oil products in the United States and Thursday's rally in equities that recaptured most of Wednesday's selloff. The Dow Jones Industrial Average was up 450 points in late trading after tumbling more than 600 points on Wednesday on concern over slowing economic growth.

On Wednesday, the Energy Information Administration reported implied demand for U.S. oil products surged 1.531 million bpd during the week ended Oct. 19 to a 21.491 million bpd seven-week high. Cumulatively in 2018 through Oct. 19, implied demand for oil products is up 529,000 bpd or 2.6% compared with the year-ago pace.

Globally, oil demand is expected at a record high 100 million bpd in the current quarter, although spiking oil prices that ushered in the fourth quarter were seen slowing growth in parts of the world, namely in emerging markets where consumption patterns accounted for the majority of the growth rate. Economic headwinds in China, the world's second largest economy, and in Europe contributed to a viewpoint that growth in oil demand would be at a slower rate than previously expected.

Oil futures were also supported ahead of U.S. sanctions on Iranian oil exports that take effect in 11 days, with companies buying Iranian oil told to stop doing so by Nov. 4 or face financial punishment from the United States. Reuters reported China's state-owned refiners Sinopec Group and China National Petroleum Corp have not purchased Iranian oil for November since they haven't received waivers from the United States to avoid sanctions.

Thursday's gains also follow a news release from the committee overseeing compliance with production quotas by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producing countries including Russia that raised concern over building inventory and forward demand.

The committee "expressed concerns about rising inventories in recent weeks and also noted looming macro-economic uncertainties which may require changing course," said the JMMC, suggesting production cuts might be needed in 2019 to avoid re-inflating a global supply bubble.

Those comments might be moot, as Saudi Arabia signals to the world that producers should produce all out to ensure adequate supply when sanctions further reduce Iranian oil exports, which are already down 800,000 bpd from April to September. The Saudis are producing 10.7 million bpd now, up 200,000 bpd from September, and said would continue to ramp up output to 11.0 million bpd.

The Saudi production hike comes as Saudi Arabia looks to soften world views against the kingdom following the murder of Saudi dissident and journalist Jamal Khashoggi, a critic of Crown Prince Mohammed bin Salman, at their consulate in Turkey.

NYMEX WTI futures settled up $0.51 at $67.33 bbl, advancing even as the U.S. dollar shook off early weakness and rallied to a nearly 10-week high. ICE December Brent settled up $0.72 at $76.89 bbl.

NYMEX November ULSD futures rallied 2.6 cents to $2.2781 gallon, with distillate fuel inventory below normal while demand is expected to strengthen with the heating season. NYMEX November RBOB futures settled down 0.94 cents at $1.8129 gallon.

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

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Brian Milne