WTI Futures Fall to $35

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Crude and petroleum product futures on the New York Mercantile Exchange and the December Brent contract on the Intercontinental Exchange settled the last trading day of October lower and extended recent declines into the second straight month. The losses came as domestic producers increased the number of active oil rigs for the sixth straight week, an indicator of future crude output. This was joined by a record surge of coronavirus infections that sparked renewed lockdown measures in the European Union, casting a shadow over an already weak global demand outlook.

Both West Texas Intermediate and Brent contracts slumped to five-month lows on their spot continuous charts, as traders reassessed demand expectations for the fourth quarter following the announcement of nationwide lockdowns in France and Germany. Even though the European Union has been battling against a resurgence in coronavirus cases for several weeks, the intensity and speed of the new quarantine measures caught many traders off-guard. The lockdowns are seen disrupting an already sluggish demand recovery that did pick up some steam over the summer months fueled by business reopenings following the spring lockdowns that boosted consumer spending. High-frequency mobility data shows traffic activity had leveled off across all major economies in the Western Hemisphere. U.S. coronavirus cases reached a new all-time high Friday at 90,000 infections, according to the Centers of Disease Control.

The new lockdown restrictions are less stringent this time around, but weakening demand has battered refinery margins, and are coming amid major uncertainty regarding the direction of U.S. policy ahead of presidential elections next week. The U.S. presidential race looks a lot tighter now than suggested just a couple of weeks ago, with polls showing Democratic nominee Joe Biden holding a narrow lead in battleground states against the incumbent Donald J. Trump.

Additionally, domestic oil producers brought back online 10 more rigs during the week ended Friday, lifting the active rig total to 221 five-month high, Baker Hughes data released this afternoon shows, with 38 rigs added in the fourth quarter so far. Friday's report follows Energy Information Administration data released Wednesday showing domestic oil production spiked 1.2 million barrels per day (bpd) to 11.1 million bpd during the week ended Oct. 23.

Internationally, the Organization of the Petroleum Exporting Countries increased production for the fourth straight month in October due to returning output from Libya and higher production in Iraq, according to industry surveys. The 13-member cartel pumped 24.59 million bpd on average in October, up 210,000 bpd from September.

On the session, December WTI futures shed 38cts to settle near a five-month spot low $35.79 per barrel (bbl) and declined more than 8% this month. ICE December Brent expired at $37.46 per bbl, and the January contract moved lower 32 cents to settle just below $38 per bbl at $37.94. In October, the international crude benchmark declined more than $3 or 8.5%.

NYMEX November ULSD futures expired down 0.71 cent at $1.0813 gallon, with December futures settling fractionally higher at $1.0859 gallon. NYMEX November RBOB futures expired marginally lower at $1.0495 gallon, with the December contract narrowing its discount to the expiring contract with a $1.0322-per-gallon settlement. On the month, ULSD and RBOB futures declined 4% and 9%, respectively.

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

Liubov Georges