CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and the Brent crude contract on the Intercontinental Exchange rallied early Friday after a market rout earlier this week that was intensified by forced selling by hedge funds caught on the wrong side of the market.
Oil futures were trending down before news emerged earlier this month that the United States granted eight countries waivers from U.S. sanctions on Iranian oil exports that took effect Nov. 5, while sharply higher upward revisions in U.S. and world oil production turned what was expected to be a tight oil market in the fourth quarter into what now appears to be an oversupplied market in 2019. Concern over world economic growth and its deleterious effect on oil demand added to those concerns, pressing West Texas Intermediate and Brent futures into bear markets.
Saudi Arabia, reportedly angry with U.S. President Donald Trump for allowing the waivers, which grant eight countries including China and India 180 days to buy Iranian oil without the threat of U.S. financial punishment, and had boosted production to a record high 10.63 million barrels per day (bpd) in October, announced over the weekend that it would cut oil production by 500,000 bpd in December. That announcement comes ahead of the Dec. 6 biannual meeting by the Organization of the Petroleum Exporting Countries in Vienna, where they will host their 10 non-OPEC oil producing countries aligned with OPEC in a production agreement. OPEC is discussing a 1.4 million bpd production cut for 2019.
That news was drowned out early this week partly by comments from Russian Oil Minister Alexander Novak, who said the oil market reached balance, and plans to cut output are premature. Russian oil companies, reports indicate, have plans to boost output, with Reuters reporting Russian crude production at a post-Soviet high of 11.41 million bpd in October.
The possibility of OPEC production cuts took on new life late this week after Vladimir Putin said, "We need to be very accurate here, each word matters. But the fact that the cooperation (with OPEC) is needed is obvious and we will cooperate," with the quote reported by Reuters.
News that China sent a written response to the United States regarding its trade dispute also soothed market anxiety, even if the two sides are reportedly far apart from an agreement. The Trump administration has demanded China provide a proposal to U.S. complaints over China's trade practices before discussions on a resolution would begin. U.S. President Donald Trump and Chinese President Xi Jinping are scheduled to meet Nov. 30 to Dec. 1 at the G-20 meeting in Argentina.
And while U.S. crude production reset the record high output rate to 11.7 million bpd in early November, the Energy Information Administration also reported record high demand for U.S. oil products at 22.387 million bpd, up 2.001 million bpd from the prior week. Cumulatively through Nov. 9, U.S. total oil products demand has averaged 20.682 million bpd, up 572,000 bpd or 2.8% against the comparable year-ago period.
U.S. industrial production increased 0.1% in October from September compared with market expectations for a 0.2% gain, although revisions, primarily in mining, pushed third quarter's annual increase to 4.7% from an initial 3.3% reading.
"Hurricanes lowered the level of industrial production in both September and October, but their effects appear to be less than 0.1% per month," said the Federal Reserve.
Manufacturing increased by an as expected 0.3% in October for the fifth consecutive monthly gain, with total industrial production up 4.1% year-on-year. Capacity utilization expanded at a more-than-projected 0.3% last month to 78.4%.
Nymex December WTI futures were up $1.45 near $57.90 barrel (bbl) in early trading ahead of the contract's expiration at Monday's closing bell, with January delivery holding a $0.20 premium to the expiring contract. A weaker U.S. dollar, which dropped to a more than one-week low this morning from this week's 17-month high, is lending upside support for WTI futures.
ICE January Brent crude futures were up $1.65 near $68.25 bbl.
Nymex December ULSD futures were up 2.55 cents near $2.0995 gallon, with December RBOB futures rallying 5.0 cents to $1.6065 gallon.
Brian L. Milne can be reached at firstname.lastname@example.org
© Copyright 2018 DTN/The Progressive Farmer. All rights reserved.