CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures with nearest delivery were down sharply early Wednesday, testing support near multi-year lows plumbed in December, while Brent crude futures on the IntercontinentalExchange sunk to a fresh 11-1/2 year low in overnight trade.
The selloff follows Tuesday's decline, intensified by industry data showing huge inventory builds for oil products in the United States during the final week of 2015 that suggests demand can't keep pace with new supply, potentially delaying a market rebalance of fundamentals beyond 2016. Brent crude futures were also pressured on news Saudi Arabia lowered its asking price for its crude to European customers.
At 9:00 AM ET, NYMEX February West Texas Intermediate crude futures were down $1.26 or 3.5% at $34.71 bbl, and near a $34.58 two-week spot low. On Dec. 21, 2015, WTI futures dropped to a $33.98 bbl seven-year low on the spot continuation chart.
ICE February Brent crude futures were down $1.60 or 4.4% at $34.82 bbl, near a $34.62 bbl fresh 11-1/2 year low on the spot continuation chart.
For products, NYMEX February ULSD futures were 3.59cts or 3.2% lower at $1.0894 gallon, near a test of support at the $1.0704 11-1/2 year low on the spot continuation chart posted during the final trade session of 2015.
NYMEX February RBOB futures were down 6.28cts or 5.0% at $1.1939 gallon, nearing last month's $1.1690 gallon seven-year low on the spot continuation chart.
Late Tuesday, the American Petroleum Institute reported a large 5.6 million bbl drawdown in U.S. commercial crude supply that countered expectations for a supply build, along with a massive 7.1 million bbl increase in gasoline inventory and a 5.6 million bbl addition to distillate fuel stocks during the week-ended Jan. 1.
"A reduction in refinery shipping schedules over the holidays can help product inventories accumulate, but we note that strong refining margins on gasoline also provide some incentive to make more," said Tim Evans, energy futures specialists with Citi Futures.
While the crude decline appears supportive on first blush, it was partly neutralized by a 1.4 million bbl build in crude stocks at the closely watched Cushing supply hub in Oklahoma, the delivery location for the NYMEX WTI futures contract that suggests the drawdown might have been sparked by tax avoidance in Texas. Refiners in Texas must pay an ad valorem tax on crude stocks held at year-end, so tend to reduce inventory ahead of Dec. 31.
Traders will look for confirmation of the API data when the Energy Information Administration releases its weekly report at 10:30 AM ET, which will also report regional breakdown of inventory.
Moreover, the massive gains in oil products proved the crude decline moot, with the gains in inventory far greater than market expectations. Again, traders will look for confirmation of the weekly change by the EIA, which is far more comprehensive then the API report.
The strengthening U.S. dollar is also weighing on crude futures, with the greenback holding near a one-month high in index trading following supportive news on U.S. employment.
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. The report illustrates the ongoing strength in the labor market, and comes ahead of the closely watched non-farm payroll report from the Labor Department Friday morning.
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