DTN Oil

WTI Futures Fade From 5-Week High

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- In early trade Friday, nearby delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange slipped from multiweek highs reached in the session prior, although all contracts are on track for better than 10% gains this week as traders cover positions amid oil production shut-ins in the U.S. Gulf of Mexico and Norwegian Shelf. Preliminary estimates suggest more than 2 million barrels per day (bpd) of output is offline due to involuntary shutdowns.

While retracing Thursday's gains, a weaker U.S. dollar, which fell 0.34% to a 3-week low of 93.305 in index trade against a basket of global currencies in overnight trade, is lending support for West Texas Intermediate futures.

Near 7:30 a.m. EDT, November WTI futures slipped 38 cents to trade just below $41 barrel (bbl) at $40.81 bbl and ICE December Brent contract fell 35 cents to $42.98 bbl, retreating from a 5-week high settlement on the spot continuous chart. NYMEX November ULSD futures were down 0.65 cents to $1.1850 gallon and November RBOB futures dropped back 2.44 cents or 2% to $1.2071 gallon.

Traders are monitoring Hurricane Delta as it again strengthened to Category 3 intensity late Thursday ahead of expected landfall along the Louisiana-Texas coastline later Friday. Hurricane Delta forced producers operating in the offshore Gulf of Mexico to make the deepest cuts in nearly 15 years, shutting in more than 1,963,232 bpd or 92% of current output on Thursday. Fifteen dynamically positioned rigs in the hurricane's projected path have been moved off locations as a precaution.

Total SA said it has begun shutting oil-processing units at its Port Arthur, Texas, refinery and Cameron LNG closed its natural gas processing plant ahead of the storm's arrival.

In Norway, an ongoing strike halted nearly 330,000 bpd in offshore output this week, shutting down six oil and gas producing fields as unions sought wage increases for offshore workers. Earlier this week, reports indicated Europe's largest oil field, Johan Sverdrup, with total capacity of 448,000 bpd could be closed as early as next week should the strike intensify.

Also underlying price support is news Saudi Arabian oil officials believe a 2 million bpd phase down in production cuts agreed to by OPEC+ set to take effect Jan. 1 is premature as the oil demand recovery is taking longer than earlier envisioned, and are said to plan to take up the issue with fellow ministers during their Nov. 30-Dec. 1 meeting. An OPEC+ agreement to limit 7.7 million bpd in current production cuts to 5.7 million bpd in January.

A recovery in global oil demand will be lackluster without a rebound in jet fuel. International travel has been hit hard by the pandemic, with varying degrees of quarantine measures across different parts of the world continuing to stymie demand. In its World Energy Outlook released this week, OPEC expects COVID-19 would depress this year's demand for passenger flights by half compared to 2019.

The recovery is unlikely to be fast according to the outlook, with air transportation not expected to reach the 2019 level until sometime between 2022 and 2024. Jet fuel represents about 8 million bpd or 8% of global oil demand, with a working assumption that the consumption rate has been cut in half to 4 million bpd in 2020. Analysts from Wood Mackenzie project a 25% recovery in jet fuel demand during the first half of 2021 to 6 million bpd.

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

Liubov Georges