CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange settled near multiyear lows on a host of negative features, although extremely bearish data released midmorning showing massive supply builds for oil products and crumbling demand accelerated the sell-off.
Oil futures were also pressured by another steep sell-off in equities, again triggered by worry over slowing economic growth in China sparked by deprecation in the Yuan, and heightened geopolitical risk after North Korea said they successfully tested a hydrogen bomb. The White House doubted the claim, and the 5.1 reading on the Richter scale is low for a hydrogen bomb, but nonetheless elevated the global risk for peaceful nations and trade.
The Dow Jones Industrial Average dropped more than 250 points or 1.5% today to 16,906.78 after a 276 points loss on Monday, with the S&P 500 Index down 26.39 or 1.3% at 1,990.32 after 1.5% of its value was erased on Monday.
NYMEX February West Texas Intermediate crude futures swung to a $33.77 bbl seven-year low on the spot continuation chart, and settled down $2.00 or 5.6% at $33.97 bbl. ICE February Brent crude futures settled down $2.19 or 6.0% at $34.23 bbl, near a $34.13 11-1/2 year low on the spot continuation chart.
For oil products, NYMEX February RBOB futures dropped back 9.49cts or 7.6% at $1.1618 gallon, edging off a new seven-year low on the spot continuation chart of $1.1535 gallon. NYMEX February ULSD futures lost 4.46cts or 4.0% of its value on the session with a $1.0807 gallon settlement, holding above the $1.0704 11-1/2 year low established Dec. 31 with a $1.0720 gallon low today.
The downtrodden market was hammered lower after the Energy Information Administration released its statistical review for oil futures for the week-ended Jan. 1 detailing a 10.6 million bbl build in gasoline supply and 6.3 million bbl increase in distillate fuel inventory, which includes diesel fuel and heating oil. The huge supply builds were well above market expectations, and pushed gasoline supply to a 232.0 million bbl nine-month high and distillate fuels to 159.4 million bbl nearly four-year high.
EIA reported implied demand for gasoline down a steep 1.236 million bpd to an 8.159 million bpd nearly two-year low for the week reviewed, and a 599,000 bpd drop for distillate fuel to a 3.034 million bpd one-year low.
The statistics were so dramatic that they might have been affected by holiday-related delays in the reporting that could prompt adjustments in forthcoming reports. Still, the building inventory and flagging demand added a psychological dimension to the statistics, reflecting recent worry that global oil supply would continue to outpace demand through year end and perhaps into 2017.
A 5.1 million bbl drawdown in U.S. commercial crude supply was discounted, with 4.9 million bbl of the decline in the PADD 3 Gulf Coast region that suggests refiners in Texas drew down stocks to reduce ad valorem taxes on end-year crude inventory. EIA also reported a 900,000 bbl build in crude supply at the Cushing supply hub in Oklahoma to a 63.9 million bbl record high, with stocks at the NYMEX WTI futures delivery location nearing tank tops.
The U.S. dollar did weaken from a one-month high in index trading this afternoon following the release of minutes from the Federal Open Market Committee's Dec. 15-16, 2015 meeting that highlighted a cautious approach to increasing the federal funds rate following last month's 0.25% hike amid concern over low inflation and the economy.
After a review of economic activity, the labor market, and inflation, the FOMC minutes said, "members expected economic conditions would evolve in a manner that would warrant only gradual increases in the federal funds rate."
The minutes were released following data on the service sector in the United States.
The Institute of Supply Management this morning reported the 71st consecutive month of growth for the U.S. non-manufacturing sector in December at 55.3%, albeit down 0.6% from November. While showing growth, the slowdown reflects market concerns over fuel demand looking ahead, with the Markit U.S. Services PMI Business Activity Index sliding from 56.1 in November to 54.3 in December, an 11-month low. Optimism for the service sector ended 2015 at its weakest point since July.
The labor market continues to improve. Payroll services provider ADP this morning reported 257,000 private sector jobs were added to the U.S. economy in December, a one-year high, in its National Employment Report, with the closely watched non-farm payroll report from the Labor Department due out Friday morning.
Brian L. Milne can be reached at email@example.com
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