Oil Tumbles as Aramco Restores Output

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent on the Intercontinental Exchange plunged 2% or more into market-on-close trade to end the third quarter with sharp losses. The November Brent, October RBOB and ULSD contracts expired down in ending business for September.

Monday's accelerated losses came after Saudi Aramco confirmed it restored production to its pre-attack level, with the quick recovery following the Sept. 14 attack easing concern over supply availability and returning focus to slowing global economies. The protracted trade war between the United States and China tops the list of worries for the world economy, reigniting concern of an oversupplied global market.

NYMEX November West Texas Intermediate settled $1.84 lower at $54.07 barrel (bbl) and shed $4.40 or 7.5% on a continuous spot basis during the third quarter. ICE November Brent expired $1.13 down at $60.78 bbl, with December futures settling at a $1.53 discount to the expired contract. The international crude benchmark dropped back $5.77 or 8.7% in the third quarter.

NYMEX October ULSD futures expired down 3.6 cents at $1.9056 gallon, with the November contract settling at a 0.84-cent discount to the expiring contract. On the month, ULSD futures rallied 4.2% on a spot continuous basis, but fell 2% on the quarterly basis. NYMEX October RBOB futures expired 4.65 cents lower at $1.6049 gallon, rolling off the board at a 3.84 cents premium to the December contract. On a spot continuous basis, RBOB futures shed 17.4% in September amid seasonal transition from peak demand in the summer months.

Oil futures declined for five consecutive trading sessions to end the volatile third quarter with steep losses for both WTI and Brent. The major driving factor behind the declines continues to be a swift recovery in Saudi Arabia production capacity after an unprecedented attack on its key oil infrastructure. During a news conference in Fujairah, Aramco's CEO of its trading arm Ibrahim al-Buainan said the company restored the "target" 9.8 million barrels per day (bpd) on Sept. 25, five days ahead of the set schedule.

Saudi Energy Minister Prince Abdulaziz bin Salman previously indicated production capacity will increase to 12 million bpd by the end of November. Historically, the Saudis had indicated they could produce 12.5 million bpd.

The Saudi official said Monday that some of this oil has not reached the global markets yet due to continued repairs at treatment units at Abqaiq oil processing complex. Aramco is currently trading 4.5 million bpd of refined crude products and crude oil.

The Saudi's swift recovery further intensified market concerns over slowing economic growth and the knock-on effect for global oil demand. Global economic indicators continue to flash signs of weakness, with manufacturing indexes across major economies falling into contraction during the third quarter.

In response to weakening fundamentals, the European Central Bank recently announced a new round of looser monetary policy, and Japan's central bank hinted at easing monetary policy. China is stimulating its economy, while the Federal Reserve trimmed the U.S. federal funds rate earlier this month, with the central bank trimming the overnight borrowing rate due to global economic headwinds. The U.S. dollar strengthened to a nearly four-week high at 99.115 in index trading Monday, further pressuring the oil complex.

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

(BAS)