Oil Futures Fall on Trade Deal Worries

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange reversed early gains to settle lower on bearish weekly supply data from the Energy Information Administration and news a trade deal between the United States and China expected to be signed in November might be delayed.

NYMEX December West Texas Intermediate futures reversed lower from a $57.85 per barrel (bbl) six-week high on the spot continuous chart to settle down $0.88 at $56.35 bbl, with ICE January Brent also reversing lower from a six-week spot high at $63.32 bbl to settle down $1.22 at $61.74 bbl. NYMEX December ULSD futures reversed down from a $1.9689 one-week spot high to settle 2.88 cents lower at $1.9278 gallon in an outside down day, with December RBOB futures plunging 4.84 cents on the session to settle at a $1.6262 two-week low settlement on the spot continuous chart.

After coming under modest selling pressure from a large build in commercial crude supply during the week ended Nov. 1 joined by a big drop in gasoline demand reported midmorning, oil futures dove lower on a Reuters report that the United States and China might delay the signing of a "phase one" trade agreement until December, citing a senior Trump administration official. According to the report, it was still possible that both countries might not even reach a comprehensive trade deal before the U.S. presidential election in 2020.

An interim U.S.-China deal was expected to include a U.S. pledge to rollback tariffs scheduled for Dec. 15 on about $156 billion worth of Chinese imports, while Beijing pledged to open its economy and enhance protection of intellectual property, a major sticking point in negotiations between Beijing and Washington.

Domestically, the third largest weekly build in U.S. commercial crude inventory of 2019 was unexpected and driven by three factors -- a 28.7% weekly drop in U.S. crude exports, 1.7% decline in the U.S. refinery rate against an expected ramp up in utilization, and ongoing drawdown from Strategic Petroleum Reserves. Against the prior week's figures, these components prompted an 11.9 million bbl upward adjustment in weekly crude inventory during the week ended Nov. 1, 4 million bbl above the 7.9 million bbl build reported midmorning by the EIA.

Curiously, the large decline in U.S. crude exports to 2.371 million bpd contrasted with multiple private tanker tracker firms showing exports at more than 4 million bpd for the week reviewed, cites HFI Research.

The large build was also a surprise considering the outage along the 590,000 barrel per day (bpd) Keystone Pipeline due to a leak in North Dakota, with the pipeline transporting Canadian crude oil to Cushing, Oklahoma, along with refineries in Illinois. The pipeline was shut Oct. 29, with no restart date available after the U.S. Pipeline and Hazardous Materials Safety Administration issued a corrective order requiring operator TC Energy to develop a restart and return to service plan. Cushing supply increased 1.7 million bbl to 47.7 million bbl during the week reviewed, widening a surplus against the five-year average.

Although the supply-demand disposition for distillate fuels remains bullish, the modest 600,000 bbl draw to 119.1 million bbl was below expectations while narrowing the supply deficit against year ago by 2.2% to 3.2% during the week ended Nov. 1. The small weekly drawdown came as distillate exports eased for the second consecutive week to a 974,000 bpd 15-week low while imports jumped 93.7% to a 306,000 bpd better than eight-month high. That pressed net distillate exports to the third lowest rate of 2019 at 668,000 bpd, with the two lowest net-distillate export rates occurring in mid-January.

The fundamental disposition for gasoline remains supportive overall, with stocks drawn down for six straight weeks, pulling 13 million bbl out of inventory since late September that pressed supply to 217.2 million bbl -- a 23-month low, and again narrowed a surplus against the five-year average. The strong draw coincided with a 357,000 bpd, or 55%, jump in gasoline exports to 1.009 million bpd -- the first week in 2019 in which gasoline exports topped 1 million bpd. Joined with lower imports, U.S. net exports at 516,000 bpd were the highest since the last week of 2018. However, implied gasoline demand plunged 639,000 bpd to a 9.145 million bpd five-week low, slipping below the five-year average for the first time since the week-ended Sept. 13.

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

(CZ)