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U.S. and Brent crude reach highest settlements in nearly 4 years

By Mayra P. Saefong

SAN FRANCISCO
Petroleumworld 10 01 2018

Oil futures rallied by almost 3% on Monday, lifting both U.S. and global benchmark crude to their highest price settlements in nearly four years.

Michael Lynch, president of Strategic Energy & Economic Research, told MarketWatch he was surprised by the strength of Monday's rally, but believes that prices got a boost from the pending trade agreement between the U.S., Canada and Mexico, as well as “growing attention on the possibility that we'll hit $100,” a barrel.

Still, “almost any bearish news should see a sell off” in prices, he said.

November West Texas Intermediate crude CLX8, +0.32% the U.S. benchmark, rose $2.05, or 2.8%, to settle at $75.30 a barrel on the New York Mercantile Exchange. December Brent crude LCOZ8, +2.68% rose $2.25, or 2.7%, to mark a finish at $84.98 a barrel on the ICE Futures Europe exchange, after tapping a high of $85.40.

WTI marked its highest front-month contract settlement since late November 2014, while Brent finish at its highest since late October 2014, according to FactSet data.

Monday's moves come after Brent crude posted a weekly gain of 5%, based on the front-month contract, while WTI oil saw a weekly climb of 3.5%, according to Dow Jones Market Data. For the month, Brent advanced 6.8%, while the U.S. contract returned 4.9% in September.

However, based on the settlement of $74.15 for the front-month contract at the end of June, WTI ended down 1.2% for the three-month period ended last week, while Brent booked a quarterly gain of 4.1%.

News that the U.S. and Canada reached a preliminary deal to revise the North American Free Trade Agreement contributed to the latest rise in oil prices. The agreement eased concerns that trade tensions would hurt demand for oil.

Meanwhile, the market is “still turning a nervous eye towards Iranian production losses,” said Robbie Fraser, commodity analyst at Schneider Electric, in a daily note. “While official U.S. sanctions against Iranian oil exports are still just over a month away, Iran's exports have already declined by at least 30% according to multiple estimates, as foreign buyers look elsewhere to source oil.”

Crude's rally over the past few months have been buoyed by declining Iranian crude exports ahead of U.S. economic sanctions against the Islamic Republic's oil industry, set to take effect Nov. 4, analysts say.

Officials at the state-run National Iranian Oil Co. have said they provisionally expect crude shipments to have dropped to about 1.5 million barrels a day this month, compared with 2.3 million barrels a day in June, according to people familiar with the matter.

With the fall in Iranian exports “expected to accelerate in the months ahead, the market turns to spare capacity in order to maintain market balance, which means a heavy focus on both the U.S. and Saudi Arabia,” said Fraser.

On Friday, however, Baker Hughes reported a second straight weekly decline in active U.S. rigs drilling for oil, hinting at a decline in oil output activity.

President Donald Trump in May pulled the U.S. out of a 2015 international agreement to curb Iran's nuclear program, setting the stage for the reimposition of economic sanctions next month. Prices on Friday saw a sudden jump with some market participants partly attributing the moves to support from reports that China is cutting back on Iranian oil purchases.

Back on Nymex Monday, November gasoline RBX8, +0.18%  added 2% to about $2.128 a gallon and November heating oil HOX8, +0.05%  rose 2.5% to $2.408 a gallon.

November natural gas NGX18, +0.58%  settled up 2.9% at $3.094 per million British thermal unit— the highest finish since January.

“Winter [natural-gas] contracts continue to extend their risk premium, with an already low storage situation amplified by a considerably weaker-than-expected [supply] injection announced last week” by the U.S. Energy Information Administration, Fraser said.

________________________

Story by Mayra P. Saefong from MarketWatch.

marketwatch.com
10 01 2018 19:28 GMT

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