Market Report & Analysis for 10/19/2018 Morning Edition

Morning Market Overview

Oil futures nearest to delivery on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange sold off sharply Wednesday as a large weekly build in U.S. commercial crude stocks assuaged market fears of a supply shortage in the fourth quarter as U.S. sanctions on Iranian oil exports take effect next month.

Midmorning, the Energy Information Administration reported an unexpectedly large 6.5 million bbl build in commercial crude inventory in the United States during the week ended Oct. 12 that followed a 14.0 million bbl increase during the two preceding weeks, narrowing a year-on- year supply deficit from 61.0 million to 40.1 million bbl during the three-week period.

The large build came despite shut-in production in the Gulf of Mexico of nearly 700,000 bpd during some of last week due to Hurricane Michael, with the EIA reporting U.S. crude production slid 300,000 bpd last week from a record high of 11.2 million bpd. U.S. crude inventory increased as U.S. crude exports plunged and imports ramped up during the week profiled for a net-increase of 576,000 bpd, while 1.1 million bbl of crude oil was pulled from the Strategic Petroleum Reserve following a 1.3 million bbl drawdown in SPR stocks week prior.

As of Oct. 12, domestic commercial crude supply was at a 15-week high at 416.5 million bbl. The rapidly building inventory has erased the backwardation in WTI’s forward curve, with the November contract settling at a $69.75 bbl one- month spot low, down $2.17, and the December contract ending down $2.06 at $69.70 bbl. November WTI options expired this afternoon, with the November WTI futures contract set to roll off the board at the Oct. 22 close of trade.