Brent at 4-Day High

CRANBURY, N.J. (DTN) -- Brent crude futures on the Intercontinental Exchange edged higher Monday, with the international price benchmark for crude settling at a four-day high as U.S. sanctions on Iranian oil exports take effect. New York Mercantile Exchange West Texas Intermediate futures eased to a fresh multi-month low settlement as crude stocks ended October at a four-month high.

Oil products settled mixed, with NYMEX ULSD futures reversing higher after trading at a new 2-1/2 month low as cold weather in the eastern half of the United States emerges in the forecast. NYMEX RBOB futures settled at an 8-1/2 month low on abundant supply levels.

Despite a day circled on calendars for nearly six months, crude futures remain under pressure from rapidly building production rates from world oil producers that have more than offset lost barrels on the international market from U.S. sanctions on Iranian oil exports that took effect Monday. This U.S. action against Iran represents the second phase of sanctions against Iran, re-imposed upon the Islamic republic following the U.S. withdrawal in May from the Joint Comprehensive Plan of Action reached in 2015, with Iranian oil sales sliding since the announcement. U.S. Secretary of State Mike Pompeo said Iranian oil exports are down 1.0 million bpd since the United States withdrew from JCPOA.

Pompeo promised "maximum pressure" on Tehran to end the country's military adventurism and destabilization in the Middle East, with U.S. sanctions that took effect Monday also targeting Iran's banking sector. Yet, news broke late last week that the United States granted eight countries waivers allowing them to continue to purchase Iranian oil, a course change from July when the U.S. said it would press Iranian oil exports to zero. The United States estimates Iran's oil exports at 1.6 million bpd.

"We expect to issue some temporary allotments to eight jurisdictions, but only because they have demonstrated significant reductions in crude oil and cooperation on many other fronts and have made important moves toward getting to zero crude oil importation," said Pompeo.

He said the Obama administration issued 20 waivers during previous sanctions from 2012 to 2015, adding, "we demanded much more serious concessions from these jurisdictions before agreeing to allow them to temporarily continue to import Iranian crude oil."

Iran's crude production is down 375,000 bpd from May to 3.447 million bpd in September and Venezuela's output has declined by 191,000 to 1.197 million bpd over the same period amid economic collapse, according to the most recent data from the Organization of the Petroleum Exporting Countries. The expected production declines by the two countries drove oil prices to four-year highs at the start of the fourth quarter. Oil production in both countries is expected to have declined further in October, with data due out next week. Reports indicate Venezuela is running out of fuel, with refineries there barely processing any crude oil, instead using the supply they do have for exports for much needed revenue.

Nonetheless, data shows OPEC crude production still muscled out a production increase of 632,000 bpd to 32.761 million bpd from May to September, with output from October estimated at a 33.3 million bpd two-year high. Oil production from Russia and the United States have both ramped sharply higher from the second quarter, with Russian output up 390,000 bpd from May to September and U.S. production up 320,000 bpd from May to October.

Against this backdrop, global oil production is expected to fall from a record high 100.2 million bpd in the current fourth quarter to 98.9 million bpd in the cyclically weak first quarter, and market sentiment is bearish.

ICE January Brent crude settled up $0.34 at $73.17 bbl, and at a $10.07 bbl premium to WTI futures. NYMEX December WTI futures settled down a modest $0.04 at $63.10 bbl, the lowest settlement on the spot continuous chart since April 6.

NYMEX December ULSD futures settled up 2.35cts at $2.1963 gallon, reversing off a $2.1563 gallon 2-1/2 month low on the spot continuous chart. NYMEX December RBOB futures settled down 1.64cts at $1.6919, with the previous low spot settlement at $1.6853 gallon reached on Feb. 13.

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

(BE)

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