DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange moved lower on Monday and the November Brent contract on the Intercontinental Exchange ended flat amid consolidation following recent gains, with West Texas Intermediate pressured by a rallying U.S. dollar, and ULSD slipping as Russia modified restrictions on fuel exports.

The U.S. dollar surged 0.4% to a 105.690 10-month high settlement in index trading against a basket of foreign currencies, continuing to strengthen following the Federal Open Market Committee's two-day meeting last week in which a majority of Federal Reserve officials expect to lift the federal funds rate 25-basis points in the fourth quarter, and to hold the benchmark bank borrowing rate above 5% through 2024. The Fed's dot-plot projections caught the market off-guard, although aligns with repeated comments from Fed Chairman Jerome Powell and other bank officials that interest rates would need to stay higher for longer to ensure inflation is arrested and moves towards its 2% target. The Bureau of Labor Statistics last reported the consumer price index up 3.6% year-on-year in August.

WTI has an inverse relationship with the U.S. dollar, with the November contract settling the session down $0.35 at $89.68 bbl. ICE November Brent settled up $0.02 at $93.29 bbl, with the prompt calendar spread widening $0.10 to a $1.41 bbl better-than 10-month high ahead of the November contract's expiration Friday (9/29) afternoon.

Calendar spreads for both Brent and WTI have widened sharply in September following the Sept. 5 announcement by Saudi Arabia that it would extend a 1 million bpd cut in crude production through the end of the year, with the unilateral reduction in output to hold back 180 million bbl of crude from July 1 through Dec. 31 absent a change in policy. The Saudi cut comes atop of production restraint by OPEC+, with Russia pledging on Sept. 5 to continue to withhold 300,000 bpd of oil exports through Dec. 31.

On Sept. 21, Russia restricted all exports of gasoline and diesel fuel for an undisclosed period to all but four countries -- Belarus, Kazakhstan, Armenia, and Kyrgyzstan, rallying gasoil in Europe and ULSD in the United States on concern and already tight global market for distillates would worsen. Russia has since modified the restrictions to allow previously accepted volume for shipment to be shipped, and for high sulfur diesel and bunker fuel to be exported.

"Russia has indicated that the ban is aimed to reduce high domestic fuel prices by preserving domestic supplies so as to 'saturate the domestic fuel market' during peak refinery maintenance and coincident harvest demand," said Bank of America Global Research in a note to clients Monday. "What is not clear is the duration [of the ban], or whether the new cuts merely formalize existing reductions or represent additional cuts."

Analysts with the research team indicate combined gasoline and diesel fuel exports from Russia have averaged around 1.95 million bpd, with most of the exports being diesel. Historically, more than half of the exports would be shipped to Europe, but previous European Union buyers have reduced Russian fuel exports to near zero on Feb. 5 amid a self-imposed ban in response to Moscow's illegal invasion of Ukraine. Those exports have largely been rerouted to Turkey, Africa, Brazil, and Southeast Asia.

ICE October gasoil futures settled down $0.05425 at $2.9915 gallon. NYMEX October ULSD futures fell $0.0440 to a $3.2622 gallon two-week low ahead of the contract's expiration Friday afternoon, narrowing its premium to the November contract to $0.0621 gallon.

NYMEX October RBOB futures settled $0.0179 lower at $2.5439 gallon, narrowing its premium over the November contract to $0.0405 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com