NYMEX WTI Rallies to 6-Week High

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange rallied Monday afternoon, with the U.S. crude benchmark settling 2.5% higher, fueled by news of a high-level reshuffle in the Saudi Arabian energy ministry, as markets eye deeper production cuts and higher compliance by the 14-member Organization of the Petroleum Exporting Countries.

NYMEX October West Texas Intermediate futures advanced for a fourth consecutive session Monday, up $1.33 with a $57.85 barrel (bbl) settlement, a six-week high on the spot continuous chart. ICE November Brent contract gained $1.05 to end the session at a $62.59 bbl settlement. NYMEX October ULSD futures surged 2.74 cents to $1.9277 gallon, the highest spot price settlement since July 31. October RBOB contract gained a more modest 1.04 cents to $1.5846 gallon.

WTI and Brent crude futures jumped to six-week high settlements after Saudi Arabia appointed Prince Adbulaziz bin Salman as a head of the powerful energy ministry, replacing Khalid al-Falih. Abdulaziz is a well-respected member of the Saudi delegation to OPEC and was one of the architects of the alliance between the 14-member cartel and 10 other oil-producing nations led by Russia, known as OPEC+.

Some analysts believe the surprise move suggests the current strategy to lift oil prices by withholding supply has not satisfied Saudi leadership, and that a new strategy is warranted. According to reports, the Saudi economy needs at least $80 bbl to balance their budget, well above the current $62 price range.

The Saudi-led cartel and its allies have struggled for months to shore up oil prices against a faltering demand outlook caused in large part by a year-long trade war between the United States and China.

Saudi Arabia's announcement of a new energy minister comes ahead of this week's Joint Ministerial Monitoring Committee (JMMC) meeting and could signal tougher rhetoric on supply control from OPEC. The news also follows reports OPEC unexpectedly increased production last month for the first time this year.

Wire services reported output by the 14-member cartel increased somewhere between 50,000 barrels per day (bpd) and 200,000 bpd in August, with most of the gains coming from Nigeria and Iraq. Overall compliance with the OPEC+ accord plunged from 150% in July to a range between 103% and 136%, based on wire service estimates. Following the announcement of a new minister, Iraq's oil minister pledged to reduce oil production starting in October.

The JMMC is scheduled to meet in Abu Dhabi on Thursday, Sept. 12, where oil ministers from OPEC and Russia will review current strategy. Traders will watch for any indications of deeper cuts from the group.

Oil futures were also lent support by reports Chinese crude oil imports jumped to 9.97 million bpd last month, up roughly 10% from a year ago, pointing to a strong demand growth in the world's largest oil importer. The volume in August was 2.8% higher from 9.7 million bpd in July.

Market participants now await a fresh reading of the consumer price index from China, set for release early Tuesday. Looking ahead, Tuesday will also bring the Energy Information Administration's Short-Term Energy Outlook with new estimates on the global supply and demand disposition. OPEC will offer its insight into market fundamentals on Wednesday with its Monthly Oil Market Report, and the Paris-based International Energy Agency will publish its monthly projections for the global oil market Thursday morning. Friday morning, market attention will return to domestic economic indicators with the latest estimate on U.S. consumer sentiment from the University of Michigan.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)