NYMEX Oil Products Down

NEW YORK (DTN) -- New York Mercantile Exchange oil futures ended mixed, with the January West Texas Intermediate crude contract rolling off the board a penny higher after shaking off early weakness, lifted by short-covering ahead of expiration. The January RBOB contract, which had been strong last week, tumbled sharply today, as recent concerns about supply eased.

"For RBOB the issue was expectation demand for gasoline will be met after recent refinery glitches have been repaired," said analyst Phil Flynn at Price Futures. "The rally for RBOB we saw in recent weeks has since eased. The steam is off during the week of Christmas because traders have fulfilled their requirements."

He added, "For WTI, it was all about expiration trade for the NYMEX January contract and a number of hedge funds were betting we are close to bottoming out. The February contract had a bit of profit-taking earlier but pared the losses."

The market was weak earlier on concern storage space for oil could run out across the globe due to building supplies amid strong production from the United States, Russia and in the Middle East.

The worry comes as Goldman Sachs sees WTI crude prices falling to the mid $20s bbl before prompting a strong enough demand response to cut down rising inventories. The bank said oversupplied market conditions could get worse next year.

NYMEX January WTI was little changed at expiration, up a penny at $34.74 bbl after reversing off a new seven-year spot low at $33.98, with the February WTI contract settling down 25cts at $35.81 bbl. The ICE February Brent contract settled down 53cts at $36.81 bbl, off an 11-year spot low at $36.04.

The NYMEX January ULSD futures contract settled down 0.85cts at $1.1004 gallon, off an 11-year low at $1.0813. January RBOB futures tumbled 6.52cts to a $1.2094 gallon settlement, off a near two-week low at $1.2000.

On Wall Street, major equity indices were higher after bouncing off Friday's two-month lows, while the dollar eased versus foreign currencies.

Trade volume was light, with traders squaring their books during this shortened trade week before the long Christmas holiday weekend. The WTI market was trading in contango.

The key issue is that oil supply is relentlessly increasing. Flynn said he expects government oil data for the week-ended Dec. 18 to show builds of 2.0 million bbl each for gasoline and distillates while crude stocks are seen to have been drawn down by 2.0 million bbl.

The latest report from Baker Hughes said rigs in the United States drilling for oil rose 17 to 541 during the week-ended Dec. 18 while data from the Energy Information Administration showed domestic crude production up 12,000 bpd to 9.18 million bpd during the week-ended Dec. 11, with crude inventories up 4.8 million bbl during the week.

Overseas, Iran and Libya are expected to increase production next year while Russia's state-owned oil company Rosneft said it will boost production next year. Russia last month produced a post-Soviet high of 10 million bpd. There is concern storage space could be further tightened if production continues to increase.

"Oil market participants are concerned that the size of the current daily surplus may soon overwhelm available storage capacity," said a Barclays Capital note. "The surplus forecast for 2016 suggests that the contango in Brent could widen further from current levels."

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