Oil Under Pressure Tuesday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures were mostly lower Tuesday morning on easing Chinese equities that continue to raise questions about oil demand, with a strengthening dollar and concern over excess supply in the United States and overseas adding to the sell-off.

“Oil prices are still under pressure after a volatile Chinese stock market trade and a big miss [in earnings] by BP,” said analyst Phil Flynn at Price Futures Group in Chicago. “While in the short term [the market] is focused on over supply, the long term outlook becomes more interesting as big and little oil are making cuts [to their investment.”

At 8 a.m. CDT, NYMEX September West Texas Intermediate crude edged up 6 cents to $47.45 bbl after posting a five-month spot low of $46.68 bbl. ICE Brent dropped 51 cents to $52.96 bbl, off a near six-month spot low of $52.28 bbl, with the Brent premium over WTI narrowing 57 cents to $5.51 bbl.

The WTI and Brent contracts are both in bear markets after dropping 25% and 24%, respectively, from their May 6 peaks.

In products trade, the NYMEX August ULSD contract eased 0.99 cents to $1.5857 gallon after trading at a $1.5699 bbl six-year low on the spot continuation chart. The NYMEX RBOB contract slipped 1.63 cents to $1.8041 gallon, off a 3-1/2 month spot low of $1.7913 bbl.

On Wall Street, U.S. equities look ready to snap a five-session losing streak, pointing to a higher open in line with gains for eurozone bourses, while the dollar index bounced off a two-week low and angled higher ahead of the U.S. Federal Open Market Committee meeting set for Tuesday and Wednesday.

The Fed is expected to delay raising interest rates until later this year, with more analysts expecting a rate hike in September. The Bureau of Economic Analysis will release its advanced estimate of U.S. Gross Domestic Production for the second quarter on Thursday.

Monday's 8.5% tumble in Chinese stock market dulled investor sentiment and another 1.0% loss was seen today for the Shanghai composite index. However, eurozone bourses rebounded and Wall Street is set to open higher. The sell-off in China's equities is seen as a sign of a wider economic malaise that could depress demand from the world's second largest crude oil consuming nation.

The market also continues to deal with a glut of supply, with a recent Baker Hughes report showing a weekly increase in rigs drilling for oil in the United States despite an oversupplied market.

An early survey of analysts showed weekly U.S. crude oil stocks are expected to have been drawn down by 2.0 million bbl for the week-ended July 24 after a 2.5 million bbl stock build a week prior. The survey also shows gasoline stocks are expected to have posted a build of 750,000 bbl while distillate supplies are expected to have increased by 1.25 million bbl for the week.

The American Petroleum Institute will issue its weekly data this afternoon while the Energy Information Administration's weekly data will be released Wednesday morning. EIA last week reported total domestic crude stocks at 463.9 million bbl for the week-ended July 17, up 25% year on year.

The bearish sentiment in the oil market has increased as Iran's oil exports are expected to increase following a historic nuclear deal with six major world powers two weeks ago. Iran is expected to raise oil exports by as much as 1.0 million bpd from its current sanction-restricted level by next year. The Organization of Petroleum Exporting Countries is producing above its agreed 30 million bpd ceiling.

George Orwel can be reached at george.orwel@telventdtn.com