Oil Settles Sharply Lower Monday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled roughly 5% lower Monday afternoon, plunging as concerns about rising global and domestic supply offset estimates for higher demand by the Organization of Petroleum Exporting Countries.

Concerns about domestic supply was triggered late in the session by a report released by market intelligence firm Genscape showing crude oil stocks at the key Cushing, Oklahoma, supply hub increased last week.

The oil market is often sensitive to how much supply there is at the Cushing hub, which also serves as the delivery point for the U.S. crude marker NYMEX-traded West Texas Intermediate crude futures contract. Genscape reported a 1.0 million barrel build at Cushing during the week ended Oct. 9.

“The selloff gained momentum after the Genscape report on Cushing supply and also light volume trade is exaggerating the sell-off,” said analyst Phil Flynn at Price Futures in Chicago.

The oil futures complex initially found support during premarket trade in a bullish demand outlook by the Organization of Petroleum Exporting Countries, but the market quickly shifted its focus back to OPEC output, which rose 109,000 barrels per day in September to 31.57 million bpd.

NYMEX November West Texas Intermediate futures shed $2.53 to $47.10 bbl at settlement, near a four-day low of $47.04. The ICE November Brent crude futures contract tumbled $2.79 to a $49.86 bbl settlement, off a four-day low of $49.77. The Brent premium over WTI eased 26cts to $2.76 bbl.

In products trade, NYMEX November ULSD futures plunged 8.85 cents to $1.5024 gallon at settlement, near a 1-1/2 week low of $1.5005. NYMEX November RBOB futures dropped 7.56 cents to a $1.3411 gallon settlement, off a five-day low at $1.3390.

On Wall Street, U.S. stock indices turned higher, while the dollar index fell to a fresh three-week low. The dollar’s weakness was linked on expectation the U.S. Federal Reserve would delay raising interest rates until next year. However, some Fed officials over the weekend said the central bank could still cut rates in December, which would be bearish for commodities that have come to rely on easy money policy.

Trade volume was thin, but most of the market's focus was trained on supply and demand fundamentals. Short term, analysts were mixed in their forecast for weekly U.S. inventories for the week ended Oct. 9. One analyst said he expected to see a 3.0 million bbl nationwide crude stock draw while another expects to see a 4.5 million bbl build. On average, they estimate a build of 750,000 bbl for the week.

The American Petroleum Institute will issue its weekly data Wednesday while the Energy Information Administration’s weekly data is due Thursday, with both sets of data delayed by a day because federal offices are closed today for Columbus Day.

Earlier today, OPEC raised its outlook for 2015 world oil demand by 40,000 bpd versus last month's estimate projecting demand would grow at a 1.5 million bpd rate to 92.86 million bpd. For 2016, global oil demand would grow at a 1.25 million bpd rate to 94.11 million bpd, a downward revision of 40,000 bpd, the report said.

On supply, the report projected a quicker decline in U.S. output. Non-OPEC oil supply growth in 2015 was revised down from month prior by 190,000 bpd to a 720,000 bpd growth rate, mainly due to "a downward adjustment in the U.S." For 2016, non-OPEC supply "is expected to show a clear contraction of 13,000 bpd," following a downward revision of 480,000 bpd versus last month's estimate.

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