DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent on the Intercontinental Exchange settled mixed, with West Texas Intermediate and Brent futures ending the final session of the third quarter lower following an explosive rally in September on a projected fourth-quarter supply deficit.

RBOB futures was the session loss leader and erased 11.8% in value during September following the end of peak summer demand and transition to winter-grade fuel specifications, while higher interest rates and persistent inflation rob consumers of purchasing power. Consumer sentiment in the United States slipped modestly in September, according to the University of Michigan's bimonthly consumer survey, although what now appears to be an inevitable government shutdown could further dim sentiment in October. Historically, consumer sentiment has correlated with gasoline consumption.

The House of Representatives on Friday failed to pass legislation to keep the federal government funded through October, with authorized funding expiring midnight Saturday, Sept. 30. Goldman Sachs chief U.S. political economist Alec Phillips said a government shutdown could last two to three weeks, and there could be more than one shutdown. He estimates "a government-wide shutdown would directly reduce growth by around 0.15 percentage point for each week it lasted, or about 0.2 percentage point per week once private sector effects were included." He added that any lost growth would be recaptured in the quarter following the reopening.

The United Auto Workers expanded a strike against Detroit's Big Three auto manufacturers midday Friday, with 25,000 of the 146,000-member union now participating in a work stoppage that has entered its third week. UAW widened the strike to a Ford plant in Chicago and a General Motors plant in Lansing, Michigan, with Stellantis spared the expanded work stoppage for what the union said was progress in negotiations.

ULSD futures advanced to a one-week high on Friday, as low global supplies could be drawn down further amid Russian export restrictions.

Russian Deputy Prime Minister Alexander Novak said if a ban on diesel and gasoline exports that took effect Sept. 21 fails to reduce unacceptably high domestic fuel prices, Moscow would consider introducing quotas on fuel exports, according to Reuters.

Domestic fuel prices in Russia surged over the summer, stoking inflation, with prices expected to continue higher amid seasonal refinery maintenance and extra fuel demand for harvesting. Earlier this week, Russia said the ban on exports did not include high-sulfur diesel and marine bunker fuel, easing upside price pressure in ULSD futures. Russia's fuel exports are primarily diesel.

NYMEX October ULSD futures expired $0.0442 higher at $3.3622 gallon, with the diesel contract climbing $0.2196 or 7% on the spot continuous chart in September, reaching a seven-month high of $3.5092 per gallon midmonth. November ULSD futures settled at $3.3006 per gallon, up $0.0302.

For the gasoline contract, NYMEX October RBOB futures expired down $0.0654 at $2.4399 per gallon, while $0.3265 gallon lower on the spot continuous chart in September. The November contract settled the session $0.0667 lower at $2.3995 per gallon.

The Energy Information Administration on Friday released monthly statistics showing U.S. crude production reached the second-highest monthly output rate on record in July at 12.991 million barrels per day (bpd). The current record was achieved in November 2019 at 13 million bpd.

Climbing domestic crude oil production is realized even as the U.S. oil rig count declines, with producers far more efficient. Baker Hughes reports the U.S. oil rig count fell to a 502 20-month low in closing out the third quarter, down from a 540-weekly high in July.

NYMEX October WTI futures settled the session down $0.92 at $90.79 per barrel (bbl), reversing off a $95.03-per-bbl 13-month high reached this week. During September WTI futures on a spot continuous basis rallied $7.16 or 8.6%.

ICE November Brent expired down a fractional $0.07 at $95.31 per bbl, dropping back from a 10-month high at $97.69 traded on Thursday, with the December contract settling at $92.20 bbl, down $0.90. During September, the spot month Brent contract rallied $8.45 or 9.7%.

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