Oil Settles Lower Wednesday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower Wednesday afternoon, as concern over a supply glut prompted a late selloff after crude and RBOB contracts had rallied earlier in the session to two-day highs.

Oil futures had extended Tuesday’s rally through the morning, boosted by data from the American Petroleum Institute and Energy Information Administration that both showed larger-than-expected crude stock draws in the United States. However, the oil complex abruptly reversed lower at around midday, with crude and RBOB contracts falling to multi-month lows following reassessment of the physical market’s supply and demand disposition.

Traders focused on the fact that the physical oil market remains oversupplied despite the weekly crude stock draw, with product supply also higher, analysts said. They cited EIA data showing domestic crude oil production increased 52,000 bpd last week to 9.465 million bpd, and product demand didn’t increase as much as the market expected while there’s only a little more than four weeks to go before the end of peak driving demand. The Labor Day holiday is often considered the end of the peak gasoline season, with the holiday falling on Sept. 7.

“The product builds were bearish and [crude] production increased,” said Andy Lipow, president of Lipow Oil Associates in Houston. “[Market] fundamentals are still quite poor,” added Thomas Finlon, director of Energy Analytics Group in Jupiter, Florida.

At settlement, NYMEX September crude futures were 59 cents lower at $45.15 bbl during whipsaw trade, reversing off a two-day high of $46.70 while trading at a 4-1/2 month spot low of $44.83.

The ICE September Brent futures contract settled 40 cents lower at $49.59 bbl, reversing off a two-day high of $50.99 to later trade at a fresh six-month spot low of $49.02. The Brent premium over WTI increased 59 cents to $4.84 bbl.

In products trade, the NYMEX September ULSD futures contract fell 0.90 cents to $1.5385 gallon at settlement. The NYMEX September RBOB futures contract settled down 1.47 cents to $1.6705 gallon, reversing off a two-day high at $1.7190 gallon to later trade at a better-than five-month spot low of $1.6563.

On Wall Street, U.S. stock indices moved mixed while the dollar reversed lower as concerns eased about a possible hike in the federal funds rate in September following data showing the rate of job creation slowed last month.

Payroll firm ADP reported that 185,000 private sector jobs were added in July, falling short of an expected 215,000 new jobs. The Labor Department will release its non-farm employment report for July on Friday.

Jobs data holds the key on whether the Federal Reserve would increase federal funds rate in September, analysts said. The dollar spiked to a 3-1/2 month high overnight before easing following the ADP report.

For oil traders, the focus today was trained on fundamentals. The EIA's data was bullish for crude, detailing a 4.4 million bbl crude stock decline for the week-ended July 31, more than twice the 1.8 million bbl draw the market expected. It was also a bigger draw than the 2.4 million bbl crude stock decline the American Petroleum Institute reported late Tuesday.

EIA showed gasoline and distillate stocks rising for the week, up 811,000 bbl and 709,000 bbl, respectively, while the market expected a 700,000 bbl draw for gasoline and a 300,000 bbl increase for distillates.

On the demand side, the EIA report showed a 348,000 bpd increase for gasoline and a 152,000 bpd rise for distillates. The report showed a 313,000 bpd rise in crude inputs, with refinery runs up 1.0% to 96.1% of operable capacity..

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