Oil Mixed After Sluggish US GDP

NEW YORK (DTN) -- New York Mercantile Exchange oil futures are mixed Thursday morning after reversing higher from overnight losses following the release of U.S. third quarter Gross Domestic Product that showed the annualized economic growth rate slightly less than forecast while the labor market remains resilient.

Nonetheless, any further upside following Wednesday's rally is limited by oversupply, with inventory and new production continuing to run ahead of demand.

In its advanced reading for the third quarter, the Bureau of Economic Analysis said U.S. GDP rose 1.5%, slightly below an expected 1.6% growth rate and down from a 3.9% expansion for the second quarter. The latest GDP reading suggests the U.S. economy has drifted downward in recent months ostensibly on global weakness, and raises fresh doubts as to whether the U.S. Federal Reserve would raise interest rates in December as the market came to expect Wednesday following the latest statement from the Fed.

The Fed on Wednesday left rates unchanged but hinted the economy was good enough to withstand a drag from China's slowdown. The market interpreted as hawkish the Fed's new moderate view of emerging market, signaling a rate hike was back on the table.

Aside from the economy, oil traders are still mulling over mixed U.S. weekly oil data that showed crude stocks continuing to increase but demand also on an uptrend. But given the many factors that the market needs to consider, the oil futures complex is likely to be volatile during Thursday's session.

At 8 a.m. CDT, NYMEX December West Texas Intermediate futures jumped 43 cents to $46.37 barrel, off a better than one-week high of $46.52. ICE December Brent crude futures edged up 3 cents to $49.09 bbl, trading near a one-week high of $49.18.

In products trade, NYMEX November ULSD futures were unchanged at $1.4839 gallon while November RBOB futures edged up 0.20 cents to $1.3521 gallon, off a near two-week high of $1.3522. The November products contracts are set to expire on Friday.

On Wall Street, U.S. equities were lower on risk-on trade, with the dollar also easing after reversing off a 2-1/2 month high. The Labor Department said this morning initial filings for unemployment benefits, a proxy for job layoffs, rose 1,000 to 260,000 for the week ended Oct. 24, lower than an expected 265,000. Four-week average claims, which smoothen out weekly volatility, remains near a 40-year low, and total claims have stayed below 300,000 since March.

Analysts said the tight labor market is encouraging employers to retain workers even as slowing overseas demand is causing companies to slow the pace of hiring new workers.

The oil complex also came under continuing pressure from a glut of crude oil supply, although the downside is curbed by improving short-term oil demand outlook. The Energy Information Administration reported a 3.4 million bbl crude stock build for the week ended Oct. 23, surpassing an expected build of 2.0 million bbl. This is the fifth straight weekly crude oil stock build that totaled 26.0 million bbl. U.S. crude oil production rose 20,000 barrel per day to 9.11 million bpd last week, the EIA data showed.

The market now awaits Baker Hughes's weekly drilling report due out Friday for clues to whether U.S. oil production fell this week. Also, a bill that passed Congress Wednesday would sell oil from the Strategic Petroleum Reserve over the next few years that could add to an already oversupplied market.

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