Crude and Refined Products Mixed in Early Trading

Monday, October 22, 2018

Crude oil and refined products are trading mixed on Monday, as market participants weighed gains in foreign equities and major US stock market index futures, following supportive economic data releases, against unsupportive remarks by the Saudi Oil Minister and strength in the US dollar against a basket of currencies.

Saudi Arabian energy minister Khalid al-Falih told Russian TASS news agency today that his country has no intention of re-imposing an oil embargo on Western nations as it did in 1973. He also said that “if oil prices will go too high, it will slow down the world economy and would trigger a global recession”. He promises that Saudi Arabia will use its “oil policy as a responsible economic tool” and separate it from politics. According to Reuters, the 1973 oil crisis began when Arab producers proclaimed an oil embargo on countries supporting Israel during the Arab-Israeli War, including Canada, Japan, Britain and the US. Oil prices, as a result, quadrupled during that period.

In other news, Iranian Oil Minister Bijan Zanganeh asked President Trump to “forgo imposition of sanctions on Iran’s oil exports”, claiming that other producers have no spare capacity to increase their production to make up for lost Iranian oil.

In domestic news, Intercontinental Exchange Inc. launched its new Permian West Texas Intermediate (WTI) crude oil futures contract today. The contract will be deliverable at Magellan Midstream Partners LP’s East Houston terminal, as ICE said that Houston has become an important center for US crude production and exports.

Economic data released for Japan over the weekend were encouraging. The Japanese All Industry Index jumped up by 0.5% month-over-month unexpectedly in August, after a downwardly revised 0.2% decline in July, with stronger growth seen across all main sectors. Today is otherwise a fairly quiet day on the economic calendar.

Crude complex futures strengthened across the board on Friday, along with US equities, amid news that OPEC producers might be struggling to increase their oil production as previously promised and weakness in the US dollar, despite a rise of 4 in the US oil rig count. The latest report by the CFTC showed that money managers cut their net long US crude futures and options position in New York and London by 37,080 to 259,375 contracts during the week ended October 16th.  WTI crude rose 47 cents for a $69.12 a barrel, Brent crude strengthened 49 cents and settled at $79.78, heating oil closed 71 points higher at $2.3020 per gallon and gasoline added 2.28 cents to settle at $1.9139.

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