Oil Moves Lower as Demand Weakens

NEW YORK (DTN) -- New York Mercantile Exchange oil futures fell Thursday morning after the U.S. Energy Information Administration on Wednesday reported product demand fell last week while the dollar strengthened and amid signs of weak U.S. economic data that hardened the bearish outlook for the sector.

A day before the U.S. nonfarm payroll report for October, the Labor Department released data this morning showing that initial jobless claims rose more-than-expected in the week ended Oct. 31. The data showed claims climbed 16,000 to 276,000 and above expectations at 262,000.

In Brussels, the European Commission said that while cheaper oil and easy monetary policy by the European Central Bank have boosted consumption, the pace of growth in the euro area remains muted. EU estimates growth at 1.6% for 2015, up from 1.5% estimated in May. Next year’s growth is seen at 1.8%, down from a 1.9% May projection.

With that in mind, traders are speculating potential policy responses by global central banks while awaiting the U.S. payroll report due on Friday that could spark another steep price move.

The dollar rallied to a three-month high versus the euro, the yen and the yuan on expectations of monetary easing by the European Central Bank and the Bank of Japan, while the People's Bank of China last week cut its benchmark one-year interest rate and bank deposit ratio.

The dollar was also boosted after U.S. Federal Reserve Chair Janet Yellen said in testimony Wednesday before Congress that a December rate hike was a possibility if incoming data shows the economy and the labor market continue to improve.

“The rally in the U.S. dollar encouraged selling across a range of commodities, with the resulting weakness calling fresh attention to the ongoing surplus in the physical crude oil market,” said analyst Tim Evans at Citi Futures.

At last look, NYMEX December West Texas Intermediate crude futures fell 43 cents to $45.89 barrel while ICE December Brent futures eased 22 cents to $48.36 bbl.

NYMEX December ULSD futures eased 0.93 cents to $1.4942 gallon while December RBOB futures fell 1.97 cents to $1.3722 gallon.

On fundamentals, Saudi Arabia moved this morning to cut its official oil prices for December exports to Europe and the United States while raising prices for exports to Asia. Saudi Aramco sets its prices relative to regional benchmarks and often raises or cuts those prices depending on buyer demand. Its latest move signals lower demand in the U.S. and Europe and higher consumption in Asia.

On Wednesday, the Energy Information Administration reported crude oil stocks increased 2.8 million bbl in the week ended Oct. 30 as expected, bringing the total crude build for the past six weeks to nearly 29 million bbl. Crude oil stocks are up 27% year-over-year. EIA also reported gasoline stocks declined 3.3 million bbl while distillate stockpiles fell 1.3 million bbl.

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