Oil Posts Steep Losses in Early 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 were posting steep losses in early trade on a market view that sharp production gains in the fourth quarter and slowing economic growth will converge to create an oversupplied market in the first quarter when global oil demand is cyclically weakest.

Waivers granted by the United States to eight countries that allow them to continue purchasing Iranian oil for six months beyond a Nov. 5 re-imposition of U.S. sanctions on Iranian oil exports has pushed aside concern over a tight market in the fourth quarter when global oil demand peaks. Instead of expectations the United States would push for zero exports from Iran, reports suggest about 900,000 barrels per day (bpd) of Iranian oil will flow to the global oil market through late second quarter.

Saudi Arabia, which pushed their oil production to a 10.63 million bpd high in October to help offset lost Iranian oil barrels, feel they were misled by the United States reports suggest, and have announced a 500,000 bpd production cut for December. The Saudis are also pushing for the Organization of the Petroleum Exporting Countries, Russia and nine non-OPEC oil producers aligned with OPEC to agree to a production cut of 1.4 million bpd in 2019 when they meet in Vienna on Dec. 6.

Support from the talk of cuts was undermined by comments from Russian Oil Minister Alexander Novak that said talk of reducing oil production should be discussed at their Dec. 6 meeting.

Steep losses in major U.S. equity indices Monday and again this morning are also chipping away at confidence over economic growth and corresponding demand, with world economies including China's signaling slowdowns. The U.S.-China trade dispute adds to those concerns.

Refinery maintenance season is winding down, which should slow the rapid restocking in U.S. commercial crude inventory, which has increased for eight consecutive weeks through Nov. 16, data from the Energy Information Administration shows. The inventory rebuilding pushed commercial crude stocks up 48.0 million barrels (bbl)12.2% from a 43-month low in mid-September to a 442.1 million bbl 11-month high on Nov. 9.

The American Petroleum Institute is scheduled to release weekly supply data at 4:30 p.m. ET, with the EIA their report Wednesday morning, while markets will close Thursday for Thanksgiving.

Nymex ULSD futures fell to a seven-month low at $2.0199 gallon Tuesday morning despite forecasts showing a winter blast taking aim at the Northeast for this holiday weekend, and the National Oceanic and Atmospheric Administration's Climate Prediction Center projects below normal temperatures to endure in the Northeast through the first half of December. The largest concentration of homes and small businesses that use heating oil to satisfy their space heating needs are situated in the Northeast.

Nymex RBOB futures slid to a $1.5003 16-month low Tuesday morning despite strong driving demand over the Thanksgiving Day holiday.

Nymex December ULSD futures were down a 5.1 cents near $2.0350 gallon and December RBOB futures were 6.7 cents lower near $1.5150 gallon in early trading.

Nymex January West Texas Intermediate futures was trading near a one-year low on the spot continuous chart at $53.70, down $2.80 at $54.40 bbl. ICE January Brent futures were down $2.70 at $64.11 bbl, trading near a $63.37 eight-month low on the spot continuous chart in early trading.

NYMEX December ULSD futures settled 1.27 cents higher at $2.0864 gallon, and the December RBOB contract settled at $1.5829 gallon, up 0.59 cent.

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

(CZ)

Brian Milne