West Texas Intermediate (WTI) and Brent crude oil prices posted solid gains Friday following reports of more unrest in the Arabian Peninsula region.
The November WTI contract settled at $54.82 per barrel Friday, reflecting a $1.15 gain. The benchmark peaked at $54.90 and bottomed out at $53.64. Compared to last Friday’s settlement, the WTI is up 3.8 percent.
December Brent added $1.41 to end the day at $60.51 per barrel. Week-on-week, Brent is up 3.7 percent.
“Both grades of oil seemed fairly range-bound this week until the overnight report of an attack on an Iranian crude tanker off the coast of Saudi Arabia created today’s rally,” said Tom Seng, Assistant Professor of Energy Business with the University of Tulsa’s Collins College of Business. “The specter of some form of retaliation by the Saudis has hung over the market since the Iranian attack on Saudi oil infrastructure last month.”
Seng added, however, that a stronger U.S. stock market and a weaker U.S. dollar contributed to the upward momentum for crude.
“The headlines regarding the U.S.-China trade war seem to change every day,” Seng continued. “One day there is optimism about reaching a deal, the next day there is pessimism. Today, talks between the two economic superpowers are underway in Washington and so the market is taking this as a positive sign. Only time will tell as we have ‘seen this movie, too’ over the past several months now.”
Seng also observed that economic data from Asia and Europe this week were mostly negative, particularly in the manufacturing sectors hurt by tariffs imposed by the U.S. and China. In addition, he said the U.S. dollar weakened against the British pound amid rumblings of a possible deal on Brexit – lowering the Wall Street Journal U.S. Dollar Index overall and helping to push dollar-denominated crude oil higher.
In addition, Seng pointed out the latest Weekly Petroleum Status Report from the U.S. Energy Information Administration (EIA) showed:
An increase last week in U.S. commercial crude inventories of 2.9 million barrels (Bbl), higher than forecasts calling for a 1.5 million-Bbl increase but below the 4.1 million-Bbl gain reported by the American Petroleum Institute (API)
Total crude oil in storage at 426 million Bbl, right at the five-year average for this time of year
A 940,000-Bbl increase in crude stored at the Cushing, Okla., hub, translating into 41.7 million Bbl total (55 percent of capacity)
A 580,000-Bbl per day (bpd) drop in refinery utilization to 15.65 million bpd, or 85.7 percent
A 16.8-percent year-on-year drop in oil imports
Average U.S. oil production last week at 12.6 million bpd – another record high
Average U.S. exports of crude oil at 3.4 million bpd – yet another high
Seng also noted the WTI/Brent spread is holding around the $5.70 level.
“Technical factors also helped move November WTI NYMEX futures contracts higher today as prices were still below the 20-day moving average, providing some upside targets,” he said. “The contract is now trading above its five- and 10-day moving averages. The contract is in an oversold position but moving toward neutral relative to overbought/oversold conditions according to momentum indicators. Today’s volume is strong at around 600,000 contracts.”
Reformulated gasoline (RBOB) for November delivery also finished the day higher. November RBOB gained 1.5 cents to settle at $1.64 per gallon. For the week, RBOB is up 4.5 percent. Seng noted that U.S. total gasoline inventories are still in the vicinity of 229 million Bbl – on the high end of the five-year average for this time of year despite last week’s decrease in gasoline output.
“Average U.S. retail prices were 25 cents per gallon lower than last year at $2.645 per gallon while NYMEX futures prices are about 50 cents per gallon less than a year ago at $1.57 per gallon,” he said.
Seng added that a recent U.S. renewable fuels policy shift could become a drag on commodity prices.
“The API is objecting to the U.S. Environmental Protection Agency’s recent decision to increase the mandated volume of ethanol to be used by U.S. oil refiners in the production of retail gasoline,” he explained. “This could have a dampening effect on the price of RBOB and, in turn, on oil prices.”
