New York — Crude oil futures were slightly higher in early New York trade Tuesday as fears of a tight oil market are being played out ahead of the expiration of the NYMEX September crude futures contract.
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At 1555 GMT ICE October Brent crude futures gained 47 cents/b from Wednesday's settle to $72.23/b, while the NYMEX September light sweet crude contract was up 97 cents/b at $67.34/b. The NYMEX September contract, which expires later Tuesday, is holding a $1.45/b premium to October, which becomes the front month at the settle.
"September squeeze as the September futures contract outpaces the back months," wrote Phil Flynn of the Price Group in a research note.
"The run into today's contract expiration reflects the fact that U.S. refineries are running at a record pace and that last week's crude oil build was not enough to satisfy the ravenous crude eating refineries," he added.
US refineries ran at 98.1% of capacity for the week ended August 10, according to Energy Information Administration data. Total US crude stocks rose by 6.8 million barrels, surprising analysts expecting a crude draw. This week, crude inventories are expected to draw by 3.37 million barrels, according to analysts polled by S&P Global Platts Monday.
The Trump administration's promise to release 11 million barrels of sour crude from the Strategic Petroleum Reserve (SPR) is timed to coincide when US imposed sanctions on Iran take effect in early November. Iran sanctions are expected to take 1 million b/d of oil off the market.
"With the Trump administration's promising more oil from the U.S. Strategic Petroleum Reserve and with the promise of shoulder season just right around the corner, the fears of a tight oil market are being played out in the September expiration," Flynn said, adding the "back months have a false sense of security that the SPR release is going to make enough of a difference."
However, Saudi Arabia is lining up to be the main supplier to replace Iran after the implementation of US sanctions in November.
Saudi Arabia's crude oil exports grew in June, in line with higher production, according to a report Monday from the Riyadh-based Joint Organizations Data Initiative. Saudi exports rose 260,000 b/d month on month to 7.244 million b/d in June, while production rose 460,000 b/d to 10.489 million b/d, the JODI data showed.
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