Oil Prices Diverge as Supply Risks Mount

by Bloomberg | Mia Gindis, Kanoko Matsuyama
click here to read this article at Rigzone.com
*this article was not written by Rosealnd Oil & Gas

WTI surged 3% while Brent edged lower amid shifting shipping costs and tight global supplies.

Brent crude fluctuated as news of a fresh release from emergency reserves helped offset increasing supply risks stretching from the Strait of Hormuz to the Black Sea.

The global benchmark edged 0.1% lower to settle near $106 a barrel after International Energy Agency member nations pledged to complete the release of 100 million barrels of oil that are still outstanding from an intervention in March. West Texas Intermediate futures, which have diverged from Brent in recent sessions, ended the day 3% higher.

US officials had informally lobbied for an IEA release at a gathering in Paris, Bloomberg reported earlier, following several similar public demands from key White House officials. President Donald Trump has been working to tame high gas and soaring diesel prices at home, with rising energy costs stemming from the US war on Iran among key voter concerns ahead of midterm elections next month.

While additional supplies from the emergency release and increased flows through Hormuz are providing some relief, physical markets continue to signal tightness. European diesel futures, meanwhile, have more than doubled since the start of the year as disruption to fuel flows from Russia and the Persian Gulf persist. US Central Command confirmed on Thursday that a container ship that sank in Hormuz this week was struck by an Iranian projectile.

The global crude oil market also remains tight, with Brent up more than 70% this year as the Middle East war drags on. Dated Brent, a critical physical-market benchmark, is holding near $130 a barrel. Iran-backed Houthi rebels have ramped up strikes against Saudi Arabia this month, while Tehran has accelerated attacks on ships in the Strait of Hormuz.

“Oil prices are likely to respond immediately to a resumption in fighting” between the US and Iran, Eurasia analysts wrote in a note. “Escalation is likely to drive oil prices into a higher band of $110 to $125, for as long as the escalatory phase lasts – likely several weeks, if not longer.”

Out of lockstep

WTI and Brent have recently fallen out of lockstep as it has become cheaper to ship American barrels, buoying demand. The cost of sending a typical cargo of US crude from the Gulf Coast to Rotterdam has shrunk about 12% over the past week, according to data from the Baltic Exchange in London.

Freight costs for other key routes have also eased from record highs in recent days, offering buyers a window to move barrels for less. With a global tanker shortage driving up transportation costs, the Trump administration is studying easing sanctions on shadow-fleet vessels that have hauled oil and products from countries including Russia, Iran and Venezuela, Reuters reported, citing a US official.

Technical factors may be contributing, too. There’s an unusually large amount of positioning still to be rolled ahead of next week’s WTI November contract expiry, potentially amplifying trading flows, according to Ryan McKay, senior commodity strategist at TD Securities.

Trend-following commodity trading advisers also turned 100% maximum long in WTI on Thursday for the first time since Sept. 25, Kpler data shows. That suggests they’ve exhausted buying capacity in US oil for now, limiting further upside moves.

In the US, weekly data from the Energy Information Administration released Thursday showed that nationwide oil inventories fell 8.6 million barrels last week, the biggest drop since February. The data largely reflected production shut-ins after a hurricane swept through the US Gulf Coast, mitigating price impact.

“A combination of production outages in the Gulf of Mexico due to Hurricane Isaias, strong crude exports and higher refining activity on the Gulf Coast led to a strong draw in PADD 3, which overwhelmingly accounted for the lion’s share of the total inventory draw,” said Matt Smith, Americas lead oil analyst at market intelligence firm Kpler.

Oil Prices

• Brent for December declined 0.1% to settle at $105.92 a barrel in New York
• West Texas Intermediate for November delivery rose 3% to settle at $97.97 a barrel

by Bloomberg | Mia Gindis, Kanoko Matsuyama
click here to read this article at Rigzone.com
*this article was not written by Rosealnd Oil & Gas