WTI, Brent Back off New Highs, ULSD Gains on Tight Supply


   
   CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest 
delivery and the Brent contract on the Intercontinental Exchange were mixed in 
early trading Thursday, with West Texas Intermediate and Brent pulling back 
from fresh highs reached overnight while ULSD futures extends an advance into a 
second session, with a tight global supply disposition driving sharp gains in 
September.

   November WTI futures traded at a $95.03 bbl fresh 13-month high on the spot 
continuation chart overnight, and November Brent reached a fresh more than 
10-month high on the spot continuation chart of $97.69 bbl as OPEC+ production 
cuts were deepened by Saudi Arabia's additional 1 million bpd output cut 
extended through the fourth quarter. Russia' pledge to continue to withhold 
300,000 bpd in oil exports in concert with the Saudi cuts exacerbate supply 
tightness, with Bank of America Research on Tuesday projecting a 70 million 
drawdown from global oil inventories during the fourth quarter.

   The runup to new highs by WTI and Brent overnight follow Wednesday's weekly 
oil report from the Energy Information Administration showing working 
commercial crude stocks at Cushing, Oklahoma, the delivery point for the WTI 
contract, slipped below 22 million bbl during the third week of September, 
threatening operations. Industry sources suggest operational issues at Cushing 
can occur when stocks fall into a 16 to 22 million bbl range. Cushing crude 
stocks last breached 20 million bbl in 2014. Commercial crude inventory 
nationally was measured at 416.287 million bbl as of Sept. 22 by the EIA, a 
15-month low.

   Falling crude inventory is deepening the backwardation in WTI and Brent's 
market structure, with WTI's six-month spread trading near Wednesday's $10.09 
bbl 14-month high.

   Global supply tightness and expanding export capacity in the United States 
has lifted export rates, with U.S. crude exports averaging 4.275 million bpd in 
the four-week period ended Sept. 22 EIA data shows, 491,000 bpd or 13% above 
the comparable four weeks in 2022.

   NYMEX November WTI futures were down about $0.50 at $93.20 bbl just ahead of 
8 AM ET, with ICE November Brent at $96 bbl, down a like amount ahead of the 
contract's expiration Friday afternoon. December Brent futures were trading at 
a roughly $2.10 discount to the expiring contract.

   NYMEX October ULSD futures were up about $0.005 at $3.32 gallon ahead of 
expiration on Friday, holding a $0.05 premium over the November contract on low 
U.S. distillate inventory, which was last measured at 18.255 million bbl or 
13.2% below the five-year average. October RBOB futures were down $0.0205 near 
$2.5779 gallon, a more than $0.05 premium to the November contract.

   Citing the TASS news agency, Reuters reported comments by Russian Energy 
Minister Nikolai Shulginov on Thursday in which the energy minister said a ban 
on Russian diesel and gasoline exports would not be lifted soon. On Sept. 21, 
Russia placed a ban on products exports because of strong domestic demand 
heightened by the harvest season, while refineries undergo seasonal 
maintenance. The stated goal of the ban was to "saturate" the domestic market 
to press domestic fuel costs, which rose over the summer stoking inflation, 
lower. Speculation by industry analysts suggested the export ban would be 
short-lived, highlighting limited storage capacity that would, once filled, 
interrupt refinery utilization. Earlier this week, Russia modified the 
restrictions, allowing high sulfur diesel and marine bunker fuel exports.

   While Russian exports are restricted, China earlier this month expanded 
export quotas for state-owned oil refiners, which have gobbled up sanctioned 
oil from Russia, Iran, and Venezuela. Reuters on Thursday also reported a 
recovery in international flights in China, boosting jet fuel demand that 
combined with higher exports suggests China's opaque inventory levels are 
elevated.

   China watchers see the world's second largest economy stabilizing following 
its recent slowdown, pointing to government intervention.

   "China's economy has recently shown some signs of stabilization, and the 
government still has many policy levers to pull," said Frank Carroll and Janet 
Wang, portfolio managers for emerging markets with Oaktree Capital Management 
on Tuesday.

   Beijing has chosen targeted measures in addressing the economic slowdown, 
including modest interest rate cuts, reduced restrictions on property buying, 
and policies to help lower local government debt instead of the large fiscal 
and monetary stimulus it has provided in the past.

    

    

   Brian L. Milne, 1.402.255.8020, brian.milne@dtn.com, www.dtn.com.




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