Oil Mixed Amid Weak Econ Data Worries

NEW YORK (DTN) -- New York Mercantile Exchange oil futures were mixed with a downside bias Friday morning amid worries weak economic data would undermine oil demand while the market remains oversupplied.

The latest data released Friday morning show July wholesale prices rose less than expected in the United States while early year growth momentum in the eurozone economy slowed during the second quarter.

China's devaluation of its currency this week highlighted its concern about a slowdown in the world’s second largest economy, adding to bearish sentiment that has taken over the oil futures market that helped drive NYMEX West Texas Intermediate crude futures to the lowest price point in more than six years.

Technical indicators are pointing to a downtrend for NYMEX crude and products contracts, analysts said.

“The number to watch is still $42 a barrel,” said analyst Phil Flynn at Price Futures. “If WTI closes above it we have a shot for a bottom; a drop in rig counts or growing speculation that the Federal Reserve can’t tighten this year with rising global deflationary pressures and the possibility of more Eurozone QE may be a case for shorts to take profits.”

At 8 a.m. CDT, NYMEX September WTI crude futures angled up 22 cents to $42.45 bbl, bouncing off a fresh 6-1/2 year low on the spot continuation chart of $41.35. ICE September Brent futures eased 31 cents to $48.91 bbl ahead of its expiration Friday afternoon while the October contract was down 44 cents at $49.19 bbl.

In products trade, the NYMEX September ULSD futures contract eased 0.69 cents to $1.5618 gallon, trimming losses after posting a one-week low of $1.5345, while the September RBOB futures contract tumbled 3.70 cents to $1.6771 gallon, off a three-day low of $1.6727.

On the economic front, the eurozone economy grew slower than expected in the second quarter. Gross domestic product expanded 0.3% in the second quarter from the first, data from Eurostat showed, while economists expected it to remain flat at 0.4%. Year-on-year, GDP improved to 1.2% from 1.0%, but slower than the 1.3% expansion forecast by economists.

In the United States, the producer price index edged up 0.2% versus expectations for a 0.3% increase. Fed Vice Chairman Stanley Fisher said earlier this week that inflation data will determine when the Fed will raise interest rate for the first time in nine years.

Meantime, global oil production is strong and could increase once sanctions are lifted on Iran, allowing Tehran to increase its exports by early next year.

The Energy Information Administration in its Short-term Energy Outlook issued on Tuesday estimated non-OPEC production growing at 1.4 million bpd this year and remaining flat in 2016 due to reduced investment. EIA also forecasts OPEC crude oil production to increase by 800,000 bpd in 2015 and remain relatively flat in 2016.

Domestically, oil production in the U.S. remains high despite the decline in oil drilling rig counts this year. U.S. demand is also expected to fall after Labor Day on reduced driving demand, with the holiday observed this year on Sept. 7.

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