Oil Futures Lower on Demand Worry

WASHINGTON (DTN) -- The front month contracts for U.S. crude and oil products futures on the New York Mercantile Exchange and Brent on the Intercontinental Exchange retreated to two-week low settlements Friday, fully retracing the price run-up triggered by the Sept. 14 attack on Saudi Arabia's oil infrastructure. Contracts were pressured by a faster-than-expected recovery in Saudi production and on concerns slowing global growth will dampen demand for fuels.

NYMEX November West Texas Intermediate futures gave back $0.50 Friday and 3.8% on the week with a $55.91 barrel (bbl) settlement, and ICE November Brent ended the session $0.83 lower at $61.91 bbl ahead of Monday's expiration, holding an $0.87 premium to the December contract. Brent lost 3.7% in value from prior Friday. NYMEX October ULSD futures dropped 1.35 cents at $1.9416 gallon, a 56-point premium to November delivery ahead of Monday's contract expiration. NYMEX October RBOB futures were 98 cents down with a $1.6514 gallon settlement, a more than 4 cents premium to the November contract with one session of trading remaining for October delivery.

The chief factor in this week's lower trade were comments from Saudi Aramco that they restored 11.3 million barrels per day (bpd) of capacity following the loss of 5.7 million bpd by the attack on key oil infrastructure nearly two weeks ago ahead of an initial projection to restore 11 million bpd by Monday (9/30). The Khurais oil field, where stabilization towers were targeted, was last reported producing 1.3 million bpd and the Abqaiq oil processing plant, the world's largest, at about 4.9 million bpd.

Saudi Energy Minister Prince Abdulaziz bin Salman on Sept. 17 had set the end of September timeline, and indicated production capacity would reach 12 million bpd by the end of November. Historically, the Saudis had indicated they could produce 12.5 million bpd.

Price pressure was also spurred by early reports Friday that Saudi Arabia reached a partial ceasefire with Houthi rebels in Yemen, with the kingdom and a coalition of forces having been engaged in a four-year war. The Houthi rebels claimed responsibility for this month's attack at the heart of the Saudi's oil infrastructure, although the United States and Saudi Arabia have cited evidence indicating the attacks were launched in Iraq or Iran. Great Britain, France and Germany this week agreed with the U.S. position that Iran was responsible for the precision attack. The situation remains fluid.

As the geopolitical risk premium in oil prices de-escalated, concern over demand ramped higher, with the International Energy Agency Chief Director Fatih Birol saying Friday the agency is likely to cut oil demand forecasts further if the global economy continues its current downward trajectory. The most recent monthly IEA report forecast the slowest growth in global oil demand since the financial crisis of 2008 for 2019 and 2020, with the annual growth rate projected at 1.1 million and 1.3 million bpd, respectively.

The comments follow overnight data that showed Eurozone's consumer sentiment eroded further this month, down 1.4 points to 101.7 -- the lowest reading since February 2015, with the steep decline led by Germany and France, down 1.3% and 0.5%, respectively.

In contrast, the University of Michigan consumer surveys index reported a 3.4-point gain to 93.2 for September, bouncing off August's three-year low.

The U.S. dollar ended index trading flat Friday afternoon, but is near earlier month multiyear highs, as the domestic economy outperforms other major economic centers. A stronger dollar pressured WTI futures since oil trades globally in dollar denominations.

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

(BAS)