Oil Down in Friday Trade

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and the Intercontinental Exchange Brent contract were down in early trading Friday and headed for steep losses on the week even as U.S. sanctions on Iranian oil exports take effect on Monday, with West Texas Intermediate at lows last seen in April and Brent at a 2-1/2 month low.

The market sold off hard in October from four-year highs and has continued the decline in early November, as world oil production climbs in spite of declining output in Venezuela and Iran.

The United States has granted waivers from the sanctions to eight countries according to Bloomberg, including Japan, India, South Korea, and China, although expects these countries to reduce Iranian oil purchases in the months ahead. In addition to the diplomacy benefits from issuing waivers, the relief was provided to ease supply tightness and hold down oil prices.

Citing an internal U.S. estimate, Iran's oil exports are down 900,000 barrels per day (bpd) at 1.6 million bpd.

Earlier this week, Reuters released findings of its survey showing crude production from the Organization of the Petroleum Exporting Countries increased 390,000 bpd from September to 33.31 million bpd, and Bloomberg found in their survey OPEC output ramped up 430,000 bpd to 33.33 million bpd. These are the highest production rates by the oil cartel since late 2016, when countries ramped up output ahead of the 2017 start to the Vienna agreement that reduced production rates to clear an oversupplied market.

Midweek, the Energy Information Administration reported U.S. crude production averaged 11.05 million bpd during the four weeks ended Oct. 26, up 1.813 million bpd or 19.6% against the comparable year-ago period. The output rate was effected by Hurricane Michael in October, with EIA showing domestic crude production at 11.2 million bpd in late October.

As world oil producers responded to calls for more supply early in the fourth quarter, namely hiking output to capture rallying oil prices in late third quarter, sentiment now is world oil inventory will build in early 2019. The International Energy Agency expects record world oil consumption of 100.2 million bpd in the current quarter to decline to 98.9 million bpd in the first quarter 2019, reflecting oil's seasonal tendency. World oil consumption peaks in the fourth quarter and is weakest in the first quarter.

Oil futures were nonresponsive to a bullish employment report released this morning showing the U.S. economy added 250,000 jobs in October, topping expectations for job growth of 200,000, while the national unemployment rate held at a 3.7% 49-year low. The Bureau of Labor Statistics reported job gains in health care, manufacturing, construction, and transportation and warehousing. On Thursday, U.S. data showed ongoing growth in manufacturing, although at a slowed rate due, in part, to a lack of qualified workers.

The U.S. dollar moved off a better-than one-week low following the employment report, although remains down from a 16-month midweek high.

In early trading, Nymex December WTI futures were down $0.35 near $63.35 per barrel (bbl), holding above a $62.99 seven-month low on the spot continuous chart. ICE January Brent was flat near $72.85 bbl, edging off a 2-1/2 month low at $72.42 bbl.

Nymex December ULSD futures were down 2.05 cents at $2.1800 gallon, trimming a decline to a $2.1734 nearly 2-1/2 month spot low. Nymex December RBOB futures were down 0.15 cents at $1.7150 gallon, holding above Thursday's $1.6889 8-1/2 month low on the spot continuous chart.

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

(BE)

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