Stock Rally Boosts Oil Futures Gains

WASHINGTON (DTN) -- Fading from intra-session highs, crude and product futures on the New York Mercantile Exchange and Intercontinental Exchange posted pared-down gains Monday, as an improved outlook on the progress of U.S.-China trade negotiations propelled U.S. stock indexes to record highs, lifting the oil complex.

Monday afternoon, oil futures remained underpinned by the shutdown of the 590,000 barrels per day (bpd) Keystone Pipeline that was shut Oct. 29. Expectations are for the pipeline to return to service as early as Tuesday but it might not come online until Sunday (11/10). The pipeline delivers oil to the Cushing supply hub in Oklahoma, as well as to refineries in Illinois. The outage is likely to have prompted a drawdown in Cushing crude supply for last week, with Cushing the underlying delivery location for NYMEX West Texas Intermediate futures.

NYMEX December WTI futures gained $0.34 to a $56.54 barrel (bbl) settlement and the ICE January Brent contract ended up $0.44 at $62.13 bbl, with both crude benchmarks settling at five-week highs on the spot continuous price chart. NYMEX December ULSD futures increased 0.74 cents to $1.9405 gallon and NYMEX December RBOB futures edged higher 0.80 cents to settle at $1.6637 gallon.

Product futures remained underpinned by the loss of Philadelphia Energy Solutions 335,000 bpd Philadelphia Refining Complex, with a supply deficit in distillate fuel supporting the ULSD contract and strong driving demand and robust job market boosting the RBOB contract.

The oil complex begin the trading week higher after encouraging comments by U.S. Commerce Secretary Wilbur Ross on U.S.-China trade negotiations and Saudi Aramco's IPO launch set for next month. The market's assumption is that Saudi Arabia needs higher oil prices to secure a successful IPO, supporting the bulls' argument that Riyadh will do whatever it takes to shore up crude prices. According to wire services, at this early stage Aramco aims to sell 2% to 5% of its shares in the IPO, depending on demand.

Monday afternoon, oil futures were also tracking equities higher, with all three major stock indexes -- the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite -- closing at new record highs. The DJIA closed 114.75 points higher at 27,462.11, topping the previous record high from July 15. The S&P 500 climbed 0.6% to 8,433 points, extending the record high gains from the week prior.

An unexpectedly bullish jobs report from late last week also underpinned support for the U.S. economy, propelling equities and oil futures higher, and fueling investors' appetite for risk-on trade.

Internationally, Iraq's antigovernment protests threatened to shut the major Gulf port of Um Qasr and Majnoon oilfield near the key city of Basra on Saturday. Iraq is the second largest oil producer within the Organization of the Petroleum Exporting Countries, with crude exports reaching 3.445 million bpd in October. Iraq's crude exports mostly take place at offshore platforms and so far have not been interrupted, but port officials indicated further escalation would likely affect the flow of commodities. The situation remains fluid.

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

(CZ)