Oil Futures Drop on Bearish EIA Data

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange crude oil futures nearest to delivery and Intercontinental Exchange Brent futures extended losses on Wednesday, with the U.S. benchmark settling at two-week low in response federal data showing large builds in gasoline and distillate stocks during the week ended July 12, while market participants weigh an earlier claim of progress in Iran's nuclear program.

Oil futures came under selling pressure midmorning Wednesday after government data showed a largely disappointing draw in domestic crude oil inventories last week, while builds in refined products surprised the markets with combined 9.3 million barrels (bbl).

The Energy Information Administration reported domestic commercial crude inventories fell 3.1 million bbl to 455.3 million bbl as of July 12, missing the calls for 4.2 million bbl draw in the aftermath of Hurricane Barry. EIA reported gasoline stocks increased for the first time in five weeks, adding 3.6 million bbl in the profiled week to 232.8 million bbl, 2% above the five --year average. Distillate inventories extended higher for a third consecutive week, rising 5.7 million bbl to 136.2 million bbl, a 12.3% year-over-year supply surplus yet about 2% below the five-year average for this time of year.

The bullish piece in Wednesday's report was the steep drop in U.S. production rate, which plunged 300,000 barrels per day (bpd) last week to 12.00 million bpd, the lowest since the beginning of March. The steep drop is likely attributed to large production shut-ins last week in the Gulf of Mexico ahead of Barry. Bureau of Safety and Environmental Enforcement reported Tuesday roughly 57% or 1,093,000 bpd of GOM production currently remains offline.

Wednesday headlines also indicate that Iran's officials backpedaled on earlier statements of "open door for negotiations" regarding its missile program. Iran's spokesman to United Nations said the country's missiles are non-negotiable and the foreign minister's remarks suggesting peaceful talks were purely "hypothetical". "Iran has no choice but to manufacture missiles for the defense purposes", said Iran's Foreign Minister Zarif said on Wednesday.

NYMEX August West Texas Intermediate ended Wednesday session $0.84 lower at $56.78 bbl, with losses accelerating after the settlement. ICE September Brent crude settled down $0.69 at $63.66 after hitting a 1-1/2 weeks low in intra-day trading.

NYMEX August RBOB futures dropped 1.31 cents to settle at a $1.8787 gallon two-week low on Wednesday. NYMEX August ULSD futures dropped 1.23 cents to $1.8926 gallon settlement.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)