Oil Drifts Lower on Economic Worries

NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved decidedly lower Friday morning on fears an economic slowdown in China and other emerging economies would curtail oil demand stoked a sell-off ahead of the weekend break.

It comes a day after the U.S. Federal Reserve confused the market by leaving its short-term interest rates unchanged at a record low of zero to 0.25% while warning about strong economic headwinds from overseas.

Analysts said the decision left the market uncertain since the reasons behind keeping rates low is bearish. The Fed had led the market to believe a rate liftoff was nigh since the U.S. economy is healthy.

However, Fed Chair Janet Yellen's concerns about China reminded the market that U.S. growth remains fragile. As a result, the rate decision weakened the U.S. dollar's value without the usual boost in equities and commodities.

At 8 a.m. CDT, NYMEX October WTI crude futures were down $1.23 at $45.67 barrel trading to a two-day low of $45.46. ICE November Brent eased $0.44 to $48.64 bbl after posting a two-day low of $48.35.

In products trade, NYMEX October ULSD futures moved 1.05 cents lower to $1.5192 gallon while NYMEX October RBOB futures fell by 0.63 cents to $1.3697 gallon.

On Wall Street, U.S. equities moved slightly lower across the board while the U.S. dollar dropped to a three-week low versus a basket of six major world currencies, including the euro.

Fed Chair Janet Yellen said policymakers were worried about slowing growth in emerging markets such as China stalling the global economy, and the potential negative spillover effects on the U.S. economy.

Yellen said monetary policy will remain accommodative for a while and federal funds rates won't be raised until the Fed is confident the U.S. economy can sustain higher rates. She didn't rule out an October rate hike, however, but said any future rate decision will depend on incoming data. Some analysts are now looking forward to a December rate hike.

Oil fundamentals remain bearish for the long haul. The global oil market is oversupplied and U.S. demand is expected to ease during the fall shoulder months when motor fuels lose their summer luster and refinery maintenance programs backs up crude oil supply presumably at the Cushing, Oklahoma supply hub that serves as the delivery point for NYMEX traded WTI.

Market bulls cite the latest weekly U.S. data issued Wednesday by Energy Information Administration with a bullish hue. That data showed a bigger-than-expected crude oil stock draw, with most of the decline recorded at the Cushing, Oklahoma.

However, the EIA data was bearish on refined products. It showed bigger-than-expected stock increases for gasoline and distillates, with implied demand lower for both products during the week ended Sept. 11.

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