NYMEX Oil Futures Settle Down

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Nearest-to-delivery oil futures traded on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange ended down Tuesday, with the West Texas Intermediate crude contract settling near a two-week low.

Tuesday's session lacked the fanfare demonstrated Monday, with the contracts mostly holding within the day prior's wide trade range ahead of the release of data showing weekly changes in domestic oil supplies.

NYMEX February West Texas Intermediate crude futures settled down 79cts at $35.97 bbl, near a two-week low on the spot continuation chart of $35.83 bbl. A rallying U.S. dollar, which strengthened to a one-month high in index trading, exerted downward pressure on the WTI contract, with oil and the greenback having an inverse relationship.

ICE February Brent crude futures settled down 80cts at $36.42 bbl.

Oil futures were under pressure for much of the session with the exception of the ULSD contract that was lent upside support from a cold weather blast that has besieged the heating oil capitol in the Northeast. The winter weather is the first of the season however, while inventory of distillate fuel—both diesel and heating oil—remain at an elevated level, with supply 27.4 million bbl or 21.8% more than a year ago on Christmas Day.

NYMEX February ULSD futures settled down a fractional 0.11cts at $1.1253 gallon, a little more than a nickel above a $1.0704 11-1/2 year low registered on the spot continuation on the final day of 2015.

The oversupplied distillate market, in contrast to a balanced domestic gasoline disposition, helps to explain the conundrum for fuel suppliers and today's weakness in the oil futures market.

Distillate supply increased rapidly during the summer months as refiners ran all out in producing gasoline to meet growing demand, and as of Dec. 25, totaled 153.1 million bbl -- the second highest supply level since October 2011. For distillates however, weak industrial output amid a strengthening dollar that hurts exports and a slowing Chinese economy hamstrung demand for diesel further frustrated by a mild start to the heating season.

Weak manufacturing in the United States and China revealed in data released Monday, with the sectors contracting in both economies in December rebirthed concern over global oil demand in 2016. The data also underpinned a steep sell-off in U.S. equity indices and a rout in China's stock market where trading was halted.

Strong demand growth is needed in 2016 to chop down a mountain of oil supply and bring the market back into balance. Gasoline demand remains strong, boosted in the U.S. by low retail prices, a better economy, and improving labor market. Gasoline demand is also strong in China and India amid rising middle classes that is also seen in robust automobile sales.

However, demand is uneven, and emerging economies are struggling. A number of analysts doubt a supply-demand balance by the global oil market in 2016.

NYMEX February RBOB futures settled down 3.4cts at $1.2567 gallon amid seasonal pressure, with speculators last seen boosting long positions for the contract. In their holiday-delayed Commitment of Trader's report released Monday, the Commodity Futures Trading Commission reported a 10.7% jump in RBOB net-length held by noncommercial traders during the week-ended Dec. 29 to a nearly 11-month high at 75,632 contracts.

Traders now await the inventory change for crude and oil products for the week-ended Jan. 1 from the American Petroleum Institute at 4:30 p.m. EST and the Energy Information Administration at 10:30 a.m. EST Wednesday, with supply builds expected amid wide ranging estimates.

A loose consensus estimates a 1.5 million bbl build in U.S. commercial crude supply occurred for the week to be reviewed, along with a 1.5 million bbl increase in distillate fuel inventory, and a 2.0 million bbl addition to gasoline stockpiles.

Brian L. Milne, 1.609.371.3328, brian.milne@telventdtn.com, www.schneider-electric.com. © 2016 Schneider Electric. All rights reserved.

(BAS)

Brian Milne