Oil Rallies in Early Monday Trade

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and the Intercontinental Exchange Brent contract are rallying in early trade Monday following a steep sell-off in an abbreviated post-Thanksgiving session amid light trade that pressed the contracts to new lows and through another level of technical support.

Brent crude barreled through $60 barrel (bbl) to a $58.41 13-month low on the spot continuous chart, and the West Texas Intermediate contract swung to a $50.10 13-month spot low overnight.

The drive behind the sell-off remains intact despite Monday's early gains, with the market reacting to a rush of oil production from the world's three largest oil producers -- the United States, Russia and Saudi Arabia -- that is seen creating a high rate of global oil inventory restocking in the first quarter. U.S. sanctions on Iranian oil exports was the chief reason why the Saudis had pushed their output rate higher, which reached a record high 11.0 million bpd briefly in early November. However, news that eight countries including China and India were given waivers by the United States to continue buying a set amount of oil from Iran for 180 days beyond the Nov. 5 re-imposition of U.S. sanctions deepened an already bearish market sentiment.

News reports point to a steep decline in Iranian oil exports in early November ahead of the sanctions. Speculation now, based on an unconfirmed U.S. analysis, suggests the sanctions will allow Iranian oil exports of 900,000 barrels per day (bpd) through early second quarter, which compares with expectations for an export rate closer to zero.

Russia is reported to have grabbed market share from Iran in China, with Reuters reporting Iran's crude exports to China in October down 64% year-on-year to 247,160 bpd. Data released over the extended weekend also show China's gasoline exports dropped to a 13-month low in October while diesel exports surged 40% in October from September.

After the Saudis pushed for a 1.4 million bpd production cut by the Organization of the Petroleum Exporting Countries, Russia and nine non-OPEC oil producers for 2019 earlier this month, the Saudis are now discussing another option after criticism from U.S. President Donald Trump and an unwilling Russia. The Saudis have already announced a 500,000 bpd production cut for December, and are said to plan on reducing their output by 1.0 million bpd that would set production near their 10.058 million bpd quota set in the Vienna agreement reached in late 2016. The plan is to quietly cut output by extending the agreement into 2019, and over complying with the quota arrangement. OPEC meets on Dec. 6.

Reports suggest an agreement might be reached ahead of the OPEC meeting, with news indicating the oil ministers for Russia and Saudi Arabia will attend the G20 meeting this Friday-Saturday (11/30-12/1) in Argentina.

Trump and China's President Xi Jinping are also scheduled to discuss their trade differences at the G-20 meeting, with tensions between the world's two largest economies credited with slowing global economic growth. Failure to reach some type of accord would likely lead to another barrage of tariffs between the two countries, and dampen world oil trade.

In early trading, Nymex January WTI futures were up $1.50 near $51.90 bbl, with ICE January Brent $1.90 higher at $60.70 bbl. Nymex December ULSD futures were up 2.95 cents near $1.9055 gallon and the December RBOB contract gained 5.65 cents to near $1.4480 gallon.

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

(CZ)

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