Oil Futures Down on Demand Worries

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange maintained losses following the release of weekly oil supply statistics from the Energy Information Administration. The report was less bearish for crude oil than industry data released late Tuesday, with the EIA report nonetheless showing continued supply building, which pushed U.S. crude and product inventory to a 23-month high.

NYMEX July West Texas Intermediate futures were down $1.55 near $51.70 per barrel (bbl) in late-morning trading, with its discount to Brent crude on the Intercontinental Exchange widening slightly to $9.15 bbl. NYMEX July ULSD futures were down 2.8 cents near $1.7940 gallon, while July RBOB futures tumbled 4.65 cents to near $1.7095 gallon.

EIA indicated domestic commercial crude stocks increased for a second consecutive week during the week ended June 7, up 2.2 million bbl, which was less than half the 4.85 million bbl increase reported by the American Petroleum Institute, although the market anticipated a modest drawdown of 600,000 bbl. Supply reached a 485.5 million bbl 23-month high.

Commercial crude oil inventory increased 44.1 million bbl or 10% so far in 2019 despite coordinated production cuts by the Organization of the Petroleum Exporting Countries, Russia and nine other non-OPEC oil producers that took effect Jan. 1. The supply build has been more pronounced in the second quarter, with commercial crude stocks up 36 million bbl or 8% since the end of March, heightening concern that demand is slowing.

Total U.S. oil products supplied to market has averaged 20.512 million barrels per day (bpd) cumulatively in 2019 through the first week of June, flat with year ago. U.S. refiner demand for crude oil over the same period is down 229,570 bpd or 1.4% against the comparable year-ago period, equating to 36.3 million bbl less crude consumed this year than in 2018.

Crude stocks at the Cushing storage farm in Oklahoma, increased 2.1 million bbl to 52.9 million bbl, an 18-month high, with inventory at the NYMEX WTI futures delivery point above the five-year average for a second straight week.

Domestic crude production eased 100,000 bpd from a 12.4 million bpd record high during the first week of June according to EIA, with the Beltway analysts on Tuesday forecasting U.S. crude production would average 12.4 million bpd in 2019.

Gasoline stocks increased 800,000 bbl to 234.9 million bbl during the seven-day period, the fourth consecutive weekly build, which matched API's estimate. Implied gasoline demand jumped a strong 436,000 bpd to 9.877 million bpd, but matched the year-ago demand rate to mute price support. Gasoline demand is running near flat with year ago through June 7 at 9.235 million bpd, down 23,000 bpd compared with 2018.

Distillate supply was drawn down 1 million bbl to 128.4 million bbl during the week profiled compared with expectations for a 1 million bbl build, but was bearish against an API reported 3.46 million bbl draw. Distillate stocks widened a year-on-year supply surplus by 1.1 million bbl to 13.7 million bbl or 11.9%.

Slowing U.S. economic growth including weakening manufacturing has raised concern over oil demand, which correlates closely with demand for diesel fuel. Implied distillate demand jumped 981,000 bpd off the third weakest demand rate of 2019 to 4.368 million bpd, a 13-week high, lent support as farmers return to the fields following extended delays caused by rain and flooding.

Brian L. Milne can be reached at brian.milne@dtn.com

(CZ)

Brian Milne