Oil Futures Mostly Up Thursday

WASHINGTON (DTN) -- Front-month oil futures contracts on the New York Mercantile Exchange and Brent on the Intercontinental Exchange moved off lows and mostly posted gains Thursday afternoon while U.S. benchmark settled marginally lower. The moves came after the U.S. Department of Defense announced it was deploying military personnel to Saudi Arabia following the Sept. 14 attack against the kingdom's oil infrastructure.

After choppy trading for most of the session, NYMEX November West Texas Intermediate futures dipped $0.08 to settle at $56.41 per barrel (bbl), while ICE November Brent gained $0.35 to end the session at $62.74 per bbl. NYMEX October ULSD futures settled 0.12 cent higher at $1.9551 gallon, and the October RBOB contract moved 3.6 cents higher to a $1.6612 gallon settlement.

Oil futures erased losses after the Defense Department announced the deployment of military personnel to Saudi Arabia for defense against regional aggression. Defense said, "In light of recent attacks on the Kingdom of Saudi Arabia," the United States would deploy "one patriot battery, four sentinel RADARs and approximately 200 support personnel" to the kingdom.

Thursday's announcement follows comments from France, Germany and Great Britain earlier this week that Iran was responsible for the attack and that they agreed with Washington's position that Tehran needs to address U.S. concerns and renegotiate the multination nuclear accord reached during the Obama administration that the Trump administration pulled out of in May 2018.

Europe's position prompted a tweet from Ali Khamenei, supreme leader of Iran, Thursday morning: "These few European countries' motive of enmity toward Iran doesn't differ much from those of U.S. Of course since they're not as powerful as U.S, they're different in effecting their enmity. They act as mediators, negotiate, call, do long talks, make empty promises-- ALL EMPTY!"

The attack knocked 5.7 million barrels per day (bpd) of crude production offline and initially sent oil prices sharply higher, with Brent crude registering its largest one-day gain on Sept. 16 when markets reopened following the weekend.

Since then, the oil complex erased nearly all their gains, as Saudi Arabia restored most of the lost production at much faster rate than expected. The latest reports indicate Saudi Aramco restored 11.3 million bpd of capacity midweek, with crude output from the Khurais field now at 1.3 million bpd and the run rate at the Abqaiq oil processing plant currently at about 4.9 million bpd. Saudi Arabia's crude output averaged 8 million bpd today, still 1.5 million bpd below the level prior to attack.

WTI futures ended slightly in the red following Wednesday's Energy Information Administration report showing a second weekly increase in domestic commercial crude supplies for the week ended Sept. 20, reversing the recent destocking pattern while the refinery maintenance season gets underway. Domestic output once again moved to a record-high 12.5 million bpd after stalling at 12.4 million bpd for two weeks in September.

A stronger U.S. dollar index, which reached a 98.45 two-week high, also weighed on the WTI contract following trade.

The U.S. Bureau of Economic Analysis reiterated gross domestic product slowed to a 2% annual growth rate in the second quarter from the 3.2% expansion pace from January through March, according to its third estimate released this morning. U.S. growth outlook is increasingly in sync with a slowing global economy, weighed down by a yearlong trade war between the United States and China.

There is cautious optimism around U.S.-China trade talks after U.S. President Donald Trump Wednesday afternoon suggested a trade deal between Washington and Beijing could happen "sooner than you think."

U.S. and Chinese officials indicate trade talks will resume in Beijing in early October.

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

(BAS)

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