CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Intercontinental Exchange Brent futures again sold off Friday and are down sharply on the week, as concern that supply availability would be limited in the current fourth quarter has turned to worry that oil would flood the market, triggering ongoing long liquidation.
"Despite having a solid year, up 7.38%, oil futures were the second worst performing commodity in the month of October, down 13.67%. With the market in a firm downtrend it is difficult to find anything to be bullish about," said Phillip Streible, senior market strategist with RJO Futures.
Friday afternoon's Commitment of Trader's report from the Commodity Futures Trading Commission shows noncommercial traders reducing a net-long position in NYMEX West Texas Intermediate futures for the fifth consecutive week through Oct. 30, with the net-long position by speculators now at a more than one-year low. Open interest in WTI futures continued to decline through end month, now at the lowest point since Jan. 2, 2017.
Ahead of the fourth quarter, speculators poured into long oil positions on the belief U.S. sanctions on Iranian oil that take effect Monday would limit supply availability and push crude prices sharply higher, potentially to $100 a barrel (bbl). However, global oil production has ramped up sharply, including U.S. output which surprised the market midweek when the Energy Information Administration reported August crude and condensate production up 400,000 barrels per day (bpd) to an 11.3 million bpd record high.
That was just another straw on the oil bull's straining back, joined by surveys from Reuters and Bloomberg this week that crude production from the Organization of the Petroleum Exporting Countries ratcheted to a nearly two-year high in October at 33.31 million bpd and 33.33 million bpd, respectively. That's a monthly increase of 390,000 bpd or 430,000 bpd, depending on the survey, and despite slowing production from Angola, Venezuela and Iran.
News emerging late week that the United States granted eight countries waivers that allow them to continue buying Iranian oil without the threat of financial punishment from the United States further undermined the bullish case. The United States expects these countries, which include Japan, India, South Korea, and China to reduce their purchases, but means the sanctions won't press Iranian oil exports to zero. The United States estimates Iran's oil exports are down 900,000 bpd to 1.6 million bpd since the U.S. decision in May to withdraw from the Iranian nuclear accord and reimpose U.S. sanctions on the Islamic republic.
Amid the supply growth, global oil demand is expected to decline from a record 100.2 million bpd high in the current quarter to 98.9 million bpd in the first quarter 2019, according to the International Energy Agency's most recent short-term forecast. The projected decline is seasonal, although worries over global economic growth seen aggravated by the U.S.-China trade dispute have added to the bearish outlook.
NYMEX December WTI futures settled down $0.55 at a $63.14 bbl seven-month low on the spot continuation chart, and erased $4.45 or 6.6% of its value this week.
ICE January Brent settled at a fresh 2-1/2 month spot low at $72.83 bbl, down $0.06, with the February contract settling at parity with January as the front end of the forward curve moves out of backwardation—a bullish market structure. Against prior Friday, nearest delivered Brent futures are down $4.79 or 6.2%, with the December contract having expired on Oct. 31.
NYMEX December ULSD futures settled at a nearly 2-1/2 month low on the spot continuation chart at $2.1728 gallon, down 2.8 cents, and lost 13.02 cents or 5.7% of its value on the week. November ULSD futures expired Oct. 31.
NYMEX December RBOB futures settled down 0.82 cents at $1.7083 gallon, an 8-1/2 month low on the spot continuation chart. Nearest delivered RBOB futures are down 10.67 cents or 5.9% this week.
Brian L. Milne can be reached at email@example.com
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