Market Report & Analysis for 9/3/2018 Morning Edition

by | Aug 31, 2018 | EMI, Fuels & Markets, FutureRack, Industry News

Morning Market Overview

On Thursday NYMEX oil futures nearest to delivery and front month Brent crude on the Intercontinental Exchange again rallied to fresh multi-week highs as the market worries global oil supply availability will tighten later this year as U.S. sanctions targeting Iranian oil exports take effect. “Given the strength that we see with [West Texas Intermediate] crude now over $70 bbl, and having broken above highs last seen at the end of July, we could be setting ourselves up to see some higher prices, especially in oil products,” said William Wilson, commodities broker for Washington, D.C.-based Powerhouse, a commodity hedge and trade advisory.

“All of the recent headlines about global supply disruptions and the effect of Iran sanctions indeed have merit, so if you have any upside price risk whatsoever, you may want to get hedged because this market has shown some resilience given the recent price break outs.” NYMEX October WTI futures settled at a $70.25 bbl six-week high on the spot continuous chart, up $0.74, trading at a $70.50 bbl intraday high. The calendar spreads also widened in the backwardated market even as U.S. production is at a record high of 11.0 million bpd. Ahead of its expiration Friday afternoon, ICE October Brent settled at a seven-week spot high of $77.77 bbl, up $0.63, and traded at a $78.03 intraday high.

The November contract settled at $78.03 bbl, up $0.63, with the Brent market set to flip into backwardation during the first trading session of September. For oil products, NYMEX September RBOB futures contract rallied 3.75cts to a $2.1435 gallon settlement, with the previous spot high settlement traded on July 30, edging off a $2.1526 intraday high.

The surge suggests a squeeze ahead of the September contract’s expiration Friday afternoon, with the 3.75cts advance far outpacing the 0.92cts gain by October RBOB futures. October RBOB settled at $2.0090 gallon, widening its discount to the expiring contract to 13.45cts gallon, the largest spread between the two delivery months since Hurricane Harvey was devastating parts of southeast Texas and western Louisiana, one-year ago.

The widening spread also reflects the seasonal transition away from peak driving demand, and the move to higher and less costly to produce RVP fuel specifications. NYMEX September ULSD futures rallied to a fresh better-than three-month high settlement on the spot continuation chart at $2.2483 gallon, up 0.62cts, ahead of the contract’s expiration Friday afternoon. Easing off a $2.2575 intraday high. The October contract kept pace, ending up 0.56cts at $2.2544 gallon.