Oil Ends Lower on Weak Demand

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures with nearest delivery settled lower for a second successive session, dropping back from multi-week highs on a stronger dollar and residual reaction to Wednesday's release of weekly data showing a decline in demand for oil products, building commercial crude inventory and higher U.S. production.

After consolidating overnight, oil futures retraced to the downside an earlier week rally, with the upside capped in front of technical resistance after the Energy Information Administration on Wednesday showed an 827,000 barrels per day or 4.1% decline in total oil products supplied to market at 19.477 million bpd during the final week of October while refiner demand for crude edged up a modest 21,000 bpd to 15.637 million bpd.

EIA also showed the sixth consecutive weekly increase in commercial crude supply for the week ended Oct. 30, up 2.8 million barrel to a nearly six-month high at 482.8 million bbl, with supply building 28.8 million bbl or 6.3% since mid-September. U.S. crude production also edged up last week by 48,000 bpd to a 9.16 million bpd one-month high.

At settlement, NYMEX December West Texas Intermediate crude futures were down $1.12 or 2.4% at $45.20 bbl and near a $45.12 one-week low, after trading Tuesday at a $48.36 bbl three-week spot high. IntercontinentalExchange December Brent crude futures settled down 60 cents at $47.98 bbl, a nickel off a $47.93 one-week low traded late session, and dropping back nearly $3.00 from a Tuesday traded $50.91 three-week spot high.

NYMEX December ULSD futures settled down 1.63 cents at $1.4872 gallon and near a $1.4857 four-day low, while down nearly a dime from a $1.5816 three-week spot high traded Wednesday. NYMEX December RBOB futures settled 3.09 cents or 2.2% lower at $1.3610 gallon after trading at a $1.3584 three-day low, and well below Wednesday's $1.4714 gallon two-month high on the spot continuation chart.

The bigger hammer in knocking NYMEX oil futures lower for a second straight session was the potential for a hike in the federal funds rate in December that lent upside support to the U.S. dollar, which reached a three-month high in index trading today. U.S. crude oil and the dollar have an inverse relationship.

During Congressional testimony on Wednesday, Federal Reserve Chair Janet Yellen cautioned against sentiment that the Fed would leave the key interest rate unchanged at the final Federal Open Market Committee meeting Dec. 15-16, telling lawmakers continued improvement in the U.S. economy and jobs market would prompt an increase next month.

The comments contrast with heightened monetary easing efforts by the European Central Bank and the Bank of Japan, and easing banking requirements by the People's Bank of China, with more intervention seen as a strong possibility.

The stronger dollar also comes ahead of Friday's much anticipated non-farm payroll report for October from the Department of Labor, with early week estimates calling for job gains in the U.S. economy last month at roughly 200,000. Thursday morning, the Labor Department reported initial jobless claims for the week-ended Oct. 31 jumped 16,000 to 276,000, and well above consensus expectations for first-time claims to have increased to 262,000.

Brian Milne can be reached at brian.milne@dtn.com

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