Oil Finishes the Day Lower

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower Tuesday afternoon, with the spot-month West Texas Intermediate crude contract pressed down to a near six-month low after China devalued its currency while the Organization of Petroleum Exporting Countries said its oil supply rose in July to a three-year high, with Iran pumping the most since 2012.

China’s decision to devalue the yuan raised concern over the strength of the world’s second largest economy and its appetite for crude and other commodities that will now be more costly for its importers since oil trades in dollars in the international market.

In addition, the U.S. Energy Information Administration cut its estimate for global oil demand growth for 2015 by 9,000 bpd from data published in July while raising 2016’s demand growth rate estimate by 55,000 bpd, according to EIA’s Short-term Energy Outlook for August released Tuesday afternoon.

“The oil market got hammered by the Chinese devaluation and the rising OPEC production, but we are waiting to see if the market will rebound to the EIA’s weekly oil report and the refinery glitches in Indiana and New Jersey,” said analyst Phil Flynn at Price Futures Group in Chicago. “It should be a total wash out, as you can see gasoline is reversing higher.”

He added, “The bears have been pounding the market and we are now testing lows, so this should be a buying opportunity. We’ll see if there’s a follow-through tomorrow.”

At settlement, the September WTI crude futures contract was down $1.88 or 4.1% at $43.08 bbl, off a near six-month low of $42.69 bbl on the spot continuation chart. ICE Brent futures tumbled $1.23 to $49.18 bbl, with the Brent premium rising 65 cents to $6.10 bbl.

In products trade, the September ULSD futures contract tumbled 4.85 cents to $1.5921 gallon at settlement while the September RBOB futures contract was near flat, down 0.03 cents, at a $1.6937 gallon settlement.

On Wall Street, U.S. equities fell while the dollar reversed higher, further pressuring the oil futures complex. The stronger dollar was linked to the Chinese devaluation of the yuan by 1.9% the greatest devaluation in two decades.

The move came a day after data showed Chinese exports plunged by 8.3% in July, the biggest decline in four months. It is meant to boost the country's exports, but it also raises the prospect of a currency war. Analysts said the Chinese move was depressing oil prices.

The market will get another opportunity to assess short-term oil supply and demand fundamentals for the domestic market when the American Petroleum Institute releases its petroleum data for the week-ended Aug. 7 at 3:30 a.m. CDT, followed by the EIA’s weekly report due out at 9:30 a.m. CDT Wednesday.

A Schneider Electric survey today shows the market anticipates a U.S. crude stock draw of 2.3 million bbl for the week-ended Aug. 7. The survey also indicates gasoline supplies are expected to have been drawn down by 1.0 million bbl while distillate stocks are expected to have increased by 500,000 bbl for the week reviewed. Analysts forecast refinery utilization eased 0.25% to 95.85% of national operable capacity.

In its Monthly Oil Market Report for August, OPEC, citing secondary sources, said its production increased 101,000 bpd to 31.51 million bpd in July, the highest since 2012 when the cartel agreed to cap its output at 30.0 million bpd.

The sharp growth in OPEC production pressed global oil supply sharply higher last month. Citing preliminary data, OPEC said in its report that global oil supply increased 230,000 bpd in July to 94.9 million bpd. For all of 2015, the report revised non-OPEC supply growth up 90,000 bpd from estimates last month for annual growth of 960,000 bpd to 57.46 million bpd.

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