CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures and the Brent contract on the Intercontinental Exchange rallied for a second session Thursday. The crude contracts settled at their highest point in two months and the gasoline contract at a nine-week high.
NYMEX January West Texas Intermediate futures settled $1.57 higher at $58.58 per barrel (bbl), with the ICE January Brent contract also gaining $1.57 on the session with a $63.97 bbl settlement. NYMEX December ULSD futures surged 5.26 cents to a $1.9447 per gallon settlement, two ticks below the 200-day moving average at $1.9449. NYMEX December RBOB futures rallied 4.81 cents to a $1.7044/gallon settlement, the highest settlement on the spot continuous chart since mid-September.
Oil futures rallied on a Reuters report that the Organization of the Petroleum Exporting Countries and non-OPEC producers aligned with the cartel in a production accord will agree to extend the nearly two-year pact through the end of June 2020, three months longer than previously expected.
Oil futures had come under pressure earlier in the week on comments from various OPEC officials that it was unlikely deeper production cuts would be considered when OPEC+ meets in Vienna on Dec. 6, instead focusing on bringing noncompliant parties into compliance. Russia is also expected to remain noncompliant with the accord as it prepares for winter and the startup of two pipelines. Russian President Vladimir Putin shored up Russia's position in OPEC+ on Wednesday, however, indicating Russia and OPEC have a "common goal" in keeping the market balanced.
Thursday's second steep advance follows bullish data for commercial crude stocks in the United States, as refiner demand is picking up as the turnaround season nears completion and exports rebounded to more than 3 million barrels per day (bpd). The less-than-expected 1.4 million bbl build in U.S. commercial crude stocks during the week ended Nov. 15 reported Wednesday by the Energy Information Administration was due to the 2 million bbl reassignment of crude from the Strategic Petroleum Reserve to commercial use.
Expectations are for expanding consumption of crude oil in the United States through year end as refiners ramp up throughput to satisfy higher demand in the fourth quarter due to heating needs as well as in preparation for new regulations for bunker fuel that lower the sulfur content from 3.5% to 0.5% beginning Jan. 1, 2020. In meeting the new global regulations governed by the International Maritime Organization, refiners are expected to process more crude oil to meet spec, and that demand for ultra-low sulfur diesel fuel would expand, considering a closer alignment in sulfur specifications.
Initial expectations have evolved somewhat.
"Analysts now believe that refiners will divert diesel feedstock to IMO-compliant fuels. Refiners may also maximize low-sulfur fuel oil and reduce high-octane gasoline," according to Powerhouse, a Washington, D.C.-based brokerage.
Powerhouse also notes expectations now call for the IMO to pull 900,000 bpd of ULSD from other uses, down from early projections for 1.5 million bpd of ULSD demand to be displaced.
Brian L. Milne can be reached at email@example.com
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