Oil Lower on Global Economic Worries

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower Tuesday afternoon after a volatile trade session, with the downside driven by worries over the global economy although the downside was curbed by a weaker dollar.

The rollercoaster price action followed the release of mixed oil data, with the International Energy Agency saying the global glut in oil supply won’t go away anytime soon due to a weaker economy. At the same time, IEA lifted its global oil demand estimate for this year while cutting its demand forecast for 2016.

“IEA’s monthly report provided a less optimistic view of the global petroleum market than in its prior assessment, underscoring the risk of an ongoing physical surplus at least through the end of 2016,” said analyst Tim Evans at Citi Futures in New York.

“IEA was mixed, so the inability for oil prices to hold on to the midsession gains may have been driven by a lower stock market. There’s a lot of concern about global economic growth,” added analyst Phil Flynn at Price Futures in Chicago.

NYMEX November West Texas Intermediate futures settled 44 cents lower at $46.66 barrel, and have since traded to a five-day low of $46.44. ICE November Brent crude futures declined 62 cents to a $49.24 bbl settlement, and have since traded at a five-day low of $48.88. The Brent premium over WTI closed at a three-week low of $2.58 bbl.

In products trade, NYMEX November ULSD futures dropped 3.16 cents to $1.4708 gallon at settlement, off a six-week spot low of $1.4685. NYMEX November RBOB futures slid 2.71 cents to $1.3140 gallon at settlement, and have since traded at a $1.3088 1-1/2 week low.

On Wall Street, U.S. stock indices were heading for a lower close while the dollar index fell to a fresh three-week low. The dollar's weakness is linked to expectation an increase in the U.S. federal funds rates would be delayed until next year.

The market's focus is on both oil market fundamentals and the global economy. In its latest monthly Oil Market Report, IEA said it foresees the global oil market oversupplied through 2016 due to slowing demand and new supply from Iran.

Iran's supply is still limited this year by Western sanctions, but some of those sanctions will likely be lifted following a deal over Iran’s nuclear ambitions with major powers this past summer.

IEA said growth in the world's consumption of oil is expected to slow from a 1.8 million barrel per day, five-year high this year to 1.2 million bpd in 2016, which reflects a downward revision of the growth rate for next year by 200,000 bpd from September's outlook. Total consumption for 2016 is now projected at 95.7 million bpd.

IEA projects global oil demand in 2015 at 94.5 million bpd, up 100,000 bpd from its September outlook, when the agency hiked the forecast by 200,000 bpd.

It comes as new data showed China's imports fell for the 11th time in a row in September while German investor confidence also dropped to a one-year low.

China said its September imports fell 20.4% from a year ago while exports contracted but by less than predicted. Also, inflation turned negative in Britain in September, the second time that has occurred since 1960, analysts said.

The market now awaits short-term domestic supply data. A survey by Schneider Electric showed the market expecting an average 1.3 million bbl build for U.S. crude oil stocks, a 300,000 bbl stock draw for distillate fuels and a 2.5 million bbl gasoline stock draw for the week-ended Oct. 9.

The American Petroleum Institute will release its weekly data on Wednesday while the Energy Information Administration's weekly data is due Thursday, with both reports delayed a day because federal offices were closed Monday for the Columbus Day holiday.

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