WASHINGTON (DTN) -- New York Mercantile Exchange nearest delivery oil futures and Intercontinental Exchange Brent settled lower Thursday after choppy back-and-forth trade, weighed down by bearish economic data from the United States as the Federal Reserve's annual economic symposium in Jackson Hole, Wyoming, gets underway, where Fed Chairman Jerome Powell will speak.
NYMEX West Texas Intermediate October futures settled $0.33 lower at $55.35 barrel (bbl), while ICE October Brent futures pared losses to end the session just below $60 bbl, down $0.38 at $59.92 bbl, after hitting an intraday high of $60.89 bbl. NYMEX September ULSD futures settled 1.6 cents lower at $1.8413 gallon, and the September RBOB contract slid 2.63 cents to end the session at $1.6675 gallon.
Oil futures reversed early gains after a survey of purchasing managers released Thursday showed the U.S. manufacturing index slipped below 50 for the first time in a decade to 49.9, triggering volatility in equity and bond markets. U.S. equity indices flipped between gains and losses for most of the session, while the yield on two-year Treasuries fell below 10-year T-notes for the third time in August.
The bearish indicators heightened concern over economic growth and oil demand, pressuring oil futures ahead of a highly anticipated speech from Powell. Powell is scheduled to speak at 10 a.m. EDT Friday at the annual banking conference. Markets expect Powell to provide insight into the central bank's thinking on monetary policy after minutes of the Fed's July meeting released Wednesday afternoon revealed ambiguity towards further cuts in the key federal funds rate following last month's 0.25% reduction.
The Brent-WTI spread ended Thursday's session near a two-week high at $4.59 bbl after narrowing to a $3.53 bbl 13-month low at the start of the week, with the widening differential illustrating an expanded geopolitical risk premium in the international benchmark after Iran once again threatened maritime security of international oil shipments.
"The world's powers know that in the case of full sanctions of Iran's oil and if its oil exports is brought down to zero, international waterways cannot have that security they used to have in the past," said Iran's President Hassan Rouhani on Wednesday according to an official Iranian government website.
The statement comes after the White House raised pressure on international governments not to assist the Iranian tanker Adrian Darya 1 as it sails in the Mediterranean after having been released by Gibraltar authorities. U.S. Secretary of State Mike Pompeo threatened sanctions on any country that provides fuel supply to the Iranian vessel.
Tensions between the two countries intensified after U.S. President Donald Trump re-imposed sanctions on Iran's crude exports in May 2018, cutting a major source of revenue for the regime in Tehran. Pompeo said earlier this week that the United States removed nearly 2.7 million barrels per day (bpd) of Iranian oil from global markets, while industry data showed crude exports from Iran plunged to 450,000 bpd last month, down 49% from 874,666 bpd just four months ago.
Despite heightened geopolitical risk, the WTI-Brent spread narrowed earlier this week after two new pipelines began transporting oil from the Permian Basin in west Texas and New Mexico to markets in eastern Texas. The EPIC and Cactus II pipelines with combined capacity of more than 1.07 million bpd came online during the week of Aug. 12. The Gray Oak pipeline is expected to startup by the end of 2019, adding another 900,000 bpd of takeaway capacity from the Permian Basin that is further narrowing the spread between WTI and Brent.
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