CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent crude on the Intercontinental Exchange ended mostly lower on the last day of October. The now-expired November ULSD futures was the only contract to eke out a modest gain. Oil futures were down sharply in October as market sentiment turned from bullish to bearish and West Texas Intermediate flipped from backwardation to contango.
Reversing four-year highs reached in early October, WTI futures settled at an 11-week low and Brent a 10-week low as speculators liquidated long positions as concern U.S. sanctions on Iranian oil exports and projected record-high global oil demand would tighten the market sharply in the fourth quarter. Falling Venezuelan crude production was another factor in the bullish bet, alongside supply uncertainty in oil producing countries such as Libya and Nigeria.
Strong production gains in Saudi Arabia and Russia countered those concerns, with Saudi production reaching 10.7 million barrels per day (bpd) in October and on its way to 11.0 million bpd. Russian oil production ramped up to a post-Soviet high at 11.74 million bpd in September.
In the United States, crude production returned to a record high 11.2 million bpd last week, according to the Energy Information Administration, after a brief decline caused by disrupted production in the Gulf of Mexico amid hurricane activity. EIA also reported domestic commercial crude stocks increased for the sixth consecutive week through Oct. 26, up 3.2 million barrels (bbl) to a 426.0 million bbl 4-1/2 month high, and 31.9 million bbl or 8.1% higher than in mid-September when stocks had dropped to a three-year, seven-month low.
A steady release of crude oil from the Strategic Petroleum Reserve over the past few weeks added to the buildup in commercial stocks. EIA reported a 1.5 million bbl draw from the SPR for the week-ended Oct. 26, with the SPR now drawn down 5.1 million bbl against 11.0 million bbl in sales.
The key driver in lower oil prices has been a downward assessment in global oil demand expectations, with those expectations partly undermined by high oil prices in late third quarter and at the outset of the fourth quarter. Oil demand in emerging economies were especially vulnerable to the high oil prices, which were exacerbated by a strengthening U.S. dollar. International oil trade is primarily conducted in the U.S. currency, which rallied to a 16-month high today.
Slowing world economic growth and its knock-on effect in oil consumption accelerated the selloff. A steady stream of data showing a slowing Chinese economy, the world's second largest, continued to remind the market early year projections of global economic growth might have been overstated.
The U.S.-China trade dispute has weighed on China's economy, heightening concern that a protracted dispute between the two largest economies would continue to tear down economic growth expectations.
NYMEX December WTI futures settled down $0.87 at $65.31 bbl, and have since fell to a $64.81 2-1/2 month spot low. In October, spot-month WTI futures tumbled $7.94 bbl or 10.8%.
ICE December Brent expired down $0.44 at $75.47 bbl, with the January contract settling at $75.04 bbl. The spot-month Brent contract erased $7.25, or 8.8%, of its value in October.
Domestically, oil products futures are responding to their fundamental and seasonal underpinnings, with the November ULSD contract expiring up 0.2 cent at $2.2618 gallon, rolling off the board at a penny premium to December delivery. ULSD futures nearest delivery are down 9.0 cents, or 3.8%, from the last business day in September.
The EIA on Wednesday reported the sixth consecutive weekly drawdown from distillate fuel inventory for the week-ended Oct. 26, down a more-than-expected 4.1 million bbl to a 126.3 million bbl nearly three-month low. Distillate stocks have held below the five-year average for eight consecutive months.
Implied demand for distillates jumped 420,000 bpd to 4.426 million bpd for the week profiled, while up 524,000 bpd or 14.2% during the four weeks ended Oct. 26 against the comparable year-ago period.
In contrast, NYMEX November RBOB futures expired down 3.79 cents at a $1.7680 eight-month low on the spot continuous chart amid abundant supply. EIA reported gasoline stocks declined 3.2 million bbl for the week profiled that lowered inventory to an 11-month low at 226.2 million bbl, although stocks are up 13.3 million bbl, or 6.3%, against a year ago.
Nearest-delivered RBOB futures freefell 33.32 cents, or 15.9%, in October. NYMEX December RBOB futures settled down 5.09 cents at $1.7514 gallon.
Brian L. Milne can be reached at email@example.com
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