Oil Higher in Wednesday Morning Trade

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

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved higher in early trading Wednesday following Tuesday's deep price plunge, and after the West Texas Intermediate contract ended down a record 12 consecutive sessions, finding support on expectations the Organization of the Petroleum Exporting Countries are discussing a 1.4 million barrels per day production cut.

WTI, Brent and RBOB futures moved deeper into bear territory Tuesday, while a blast of below normal weather conditions in the Northeast that is heavily dependent on heating oil joined by below normal supply levels have limited the decline in ULSD futures from a $2.45 October peak to a four-month low this morning to 16%.

"The price crash is causing a loss of confidence in the broader market," said Phil Flynn, senior market analyst with the PRICE Futures Group, citing "a very nervous market."

"Oil price crashes in the past have sometimes signaled a coming recession in global markets. While lower oil prices can be good, crashing oil prices can signal a sharply slowing economy. There are real concerns that if this price crash in oil continues, that it is signaling big problems," said Flynn.

Oil futures have sold off hard on a rapid restocking pace in global oil inventories, with inventory rebuilding expected in the current fourth quarter according to the International Energy Agency following late third quarter concerns of a tightly balanced market because of lost Iranian oil exports amid U.S. sanctions.

"Global oil supplies are growing rapidly, as record output from Saudi Arabia, Russia and the U.S. more than offsets declines from Iran and Venezuela," said IEA Wednesday morning in their Oil Market Report.

The Paris-based agency said world oil production in October was 2.6 million bpd more than year prior, with non-OPEC supply accounting for 2.4 million bpd of the year-on-year increase. IEA revised higher non-OPEC output expectations for this year and 2019 by 200,000 bpd for annual growth of 2.4 million bpd this year to 60.4 million bpd and by 1.9 million bpd in 2019.

In the third quarter, commercial oil inventory held by the 35 country bloc Organization for Economic Cooperation and Development increased 58.1 million barrels (bbl) or by 630,000 bpd, "the largest gain since 2015."

"Global refinery throughput is also likely to exceed refined product demand both in 4Q18 and into 2019," said IEA.

The agency did maintain its expectations for world oil demand for both this year and in 2019, although noted the growth would be underpinned by developed economies while developing economies strain amid "currency devaluations and slowing economic activity."

"For now, forecasts of oil demand growth remain solid with an increase of 1.3 million barrels per day this year and an increase to 1.4 million bbl/day in 2019, even though the macro-economic outlook is uncertain," said IEA, eyeing a world oil consumption rate in 2019 of 100.5 million bpd.

The Dow Jones Industrial Average was up more than 100 points in early trading after dropping 700 points in the past two trading sessions, ending Tuesday's trade at 25,286.49. On Oct. 3, DJIA set a record high at 26,951.81.

In early trade, Nymex December WTI futures were up $1.00 near $56.70 bbl, with ICE January Brent up $1.45 near $66.90 bbl. Nymex December ULSD futures reversed off a fresh $2.0503 four-month spot low traded overnight to gain 5.75 cents at $2.12 gallon. Nymex December RBOB futures were up 3.0 cents near $1.5725 gallon.

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


Brian Milne