Futures Movers: Oil prices climb to multiyear highs on tight supplies
Oil futures climbed on Tuesday, with U.S. benchmark crude prices finishing at a fresh seven-year high on expectations that global supplies will remain tight.
“There is little that can tilt oil prices away from their upwards momentum on the short term, as the only real supply source of significance is OPEC+, and there doesn’t seem to be much mood for policy change on that front for the moment,” said Louise Dickson, senior oil markets analyst at Rystad Energy, in daily market commentary.
OPEC+, which is comprised of the Organization of the Petroleum Exporting Countries and its allies, will hold a meeting on Nov. 4 to discuss production levels.
“There are only two offramps to the current bout of oil price volatility and one is OPEC+ taking supply action, but the group has repeatedly said it does not plan on altering its strategy,” said Dickson. There’s also the chance that “another round of COVID-19 breakouts and lockdowns could again dim the demand outlook,” she said. “But it seems to be a last resort strategy for many economies that are tired of repeating the unpopular economy-damaging process.”
Russia’s deputy prime minister, Alexander Novak, on Monday said he expected OPEC+ next week to agree to raise output by another 400,000 barrels a day in November — in line with the timetable agreed earlier this year.
“It’s hard to see OPEC increase supply until they feel the threat of a non-OPEC nation coming in and taking market share,” said Craig Turner, senior commodities broker with StoneX Financial’s Daniels Trading Division, in emailed commentary. OPEC doesn’t have as much competition from U.S. shale producers as it did seven years ago, and those shale producers “can’t turn on new production overnight,” even though $85 crude is profitable for them, he said.
Against that backdrop, West Texas Intermediate crude for December delivery
CL00,
+1.00%
CLZ21,
+1.00%
rose 89 cents, or 1.1%, to settle at $84.65 a barrel on the New York Mercantile Exchange, marking the highest finish for a front-month contract since Oct. 13, 2014, according to Dow Jones Market Data. The U.S. benchmark touched intraday highs above $85 on Monday, the highest in about seven years, before ending that day unchanged.
December Brent crude
BRNZ21,
-0.01%,
the global benchmark, climbed 41 cents, or 0.5%, at $86.40 a barrel on ICE Futures Europe, the highest since Oct. X, 2018. January Brent
BRN00,
-0.01%
BRNF22,
-0.01%,
the most actively traded contract, rose 48 cents, or 0.6%, to $85.65 a barrel.
Traders, however, also were wary of the potential resumption of nuclear talks with Iran that may eventually lead to more crude on the market.
Before prices saw a more solid move up Tuesday afternoon, the market “traded on both sides of unchanged,” Phil Flynn, senior market analyst at The Price Futures Group.
Most traders are “skeptical” that any nuclear talks between Iran and world powers will go very far, he said.
Robert Malley, U.S. special envoy for Iran, warned that efforts to resume the Iran nuclear talks are entering a “critical phase,” Al Jazeera reported Monday. Talks were suspended in June. Iran has said it’s willing to return to the negotiations, but wants the outcome of the talks to lead to a lifting of sanctions, the report said. If the U.S. lifts sanctions on Iran’s oil, that would lead to more global supplies.
Meanwhile, some traders are “wondering if the oil prices have come up too far, too fast,” so they were reluctant to drive prices higher “until we get a better handle on [crude] inventories this week,” said Flynn.
He expects the oil market to see “some extreme volatility…in the next couple of days, but make no mistake about it: global inventories are tight and there seems to be significant upside risks to prices, even though we may settle down here in the short term,” he said.
Meanwhile, November natural gas
NGX21,
-0.27%
NG00,
-0.27%
settled down 0.3% at $5.882 per million British thermal units. The contract, which expires at the end of Wednesday’s session, climbed by nearly 12% Monday following a forecast from the National Oceanic and Atmospheric Administration predicting colder-than-normal conditions for most of the U.S. Southeast and Midwest during the first week of November.
Natural-gas prices are “being driven up by forecasts of lower temperatures in the coming two weeks and the expectation of higher LNG exports now that maintenance work has been completed at a number of liquefaction facilities,” noted Carsten Fritsch, commodity analyst at Commerzbank. “Both are likely to increase demand for U.S. natural gas and result in a decline in U.S. natural gas stocks, which — shortly before the start of the heating season — are 4% below the average level of the years 2016-20.”
The Energy Information Administration will release its weekly data on U.S. petroleum supplies on Wednesday.
On average, analysts expect the EIA to report domestic crude supplies down 100,000 barrels for the week ended Oct. 22, according to a survey conducted by S&P Global Platts. They also forecast weekly inventory declines of 2.7 million barrels for gasoline and 2 million barrels for distillates.
On Nymex Tuesday, November gasoline
RBX21,
-0.11%
settled up a fraction of a cent at $2.517 a gallon and November heating oil
HOX21,
+0.30%
tacked on 0.5% to $2.577 a gallon.
