Oil Lower on Supply, Demand Outlook

Oil Lower on Supply/Demand Outlook

Oil futures declined Tuesday morning after the IEA reiterated its expectations that growth in global oil demand would slow this year from an estimated 1.6 million barrels per day in 2015 to 1.2 million bpd this year.

NEW YORK (DTN) -- New York Mercantile Exchange oil futures declined Tuesday morning after the International Energy Agency reiterated its expectations that growth in global oil demand would slow this year from an estimated 1.6 million barrels per day in 2015 to 1.2 million bpd this year, while highlighting higher production by the Organization of Petroleum Exporting Countries in January.

The IEA in its Oil Market Report for February released this morning forecasts world oil consumption for 2016 at 95.7 million bpd, adding any adjustments to its outlook are skewed to the downside amid potential economic headwinds.

At 8 a.m. CT, NYMEX March West Texas Intermediate crude futures fell 9 cents to 29.60 barrel, off a two-week low of $29.30, while April Brent oil futures on the IntercontinentalExchange declined 14 cents to $32.74 bbl, off a one-week low of $32.45.

In products trade, March ULSD futures eased 1.58 cents to $1.0306 gallon, off a one-week low of $1.0226, while March RBOB futures eased 2.76 cents to $0.9285 gallon, off a fresh seven-year low on the spot continuation chart of $0.9173 gallon.

On Wall Street, stock indices were down across the board ahead of their 8:30 a.m. CT open, with the dollar also lower versus its peer currencies.

Oil trading is being driven largely by fundamentals, with the oil complex giving up overnight gains after Paris-based IEA issued its report this morning. The oil complex appears set to continue its volatile trading, with a raft of data scheduled for this week.

On supply, IEA said crude oil output by the Organization of Petroleum Exporting Countries increased by 280,000 bpd to 32.63 million bpd in January from a month earlier, "as a sanctions-free Iran, Saudi Arabia and Iraq all turned up the taps." OPEC's January production rate was nearly 1.7 million bpd higher than in January 2015.

The non-OPEC production rate declined by 500,000 bpd in January from December to near the output rate in January 2015, with total 2016 non-OPEC output forecast at 57.1 million bpd, down 600,000 bpd from 2015. Total global supply shrunk 200,000 bpd to 96.5 million bpd in January due to the drop in non-OPEC supply.

This is the latest indication of a market where supply is running ahead of demand, as OPEC continues to rebuff proposals to cut production. Venezuela this past week lobbied other OPEC members to agree on production cuts but failed to convince Saudi Arabia during a meeting on Sunday. Two weeks ago, Russia attempted to schedule a meeting with OPEC for later this month but was similarly rebuffed.

Saudi Arabia is defending its market share, Iraq is pumping at record levels and Iran won't cut output until its production increases to pre-sanctions levels.

Domestically, crude oil inventories have been rising consistently over the past couple of weeks with data for the week ended Jan. 29 showing stocks 22% higher than comparable period a year ago. For the week ended Feb. 5, an early survey projects a crude stock build of between 2.0 million and 5.0 million bbl.

The American Petroleum Institute will release its weekly data later Tuesday afternoon, with the Energy Information Administration's weekly report due out Wednesday morning. EIA will also issue its monthly Short-term Energy Outlook report at 11 a.m. CT.

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

(CZ)