Oil Lower on Weak Demand Outlook

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled sharply lower Tuesday afternoon ahead of weekly data that is expected to show another big stock build for domestic crude stocks. The futures complex tumbled, with West Texas Intermediate settling below $30 barrel for the second straight session after forecasts for weaker demand drove traders to liquidate long positions.

Analysts described Tuesday's monthly supply and demand forecasts by the Energy Information Administration and the International Energy Agency as bearish. The EIA's Short-term Energy Outlook trimmed its estimates for global oil demand growth rate for both 2016 and 2017 from levels published in January.

The IEA reiterated its expectations that growth in global oil demand would slow this year from an estimated 1.6 million bpd 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 earlier this morning forecasts world oil consumption for 2016 at 95.7 million barrels per day, adding any adjustments to its outlook are skewed to the downside amid potential economic headwinds.

At settlement, NYMEX March WTI crude futures fell $1.75 or 6% to 27.94 bbl, off a near three-week spot low of $27.74, while April Brent oil futures on the IntercontinentalExchange declined $2.56 or 8% to $30.32 bbl, off a near two-week spot low of $30.28.

In products trade, March ULSD futures plummeted 7.15 cents or 7% to $0.9749 gallon, off a better than one-week low of $0.9720, while March RBOB futures tumbled 5.72 cents or 6% to $0.8989 gallon, near a seven-year low on the spot continuation chart of $0.8975 gallon.

On Wall Street, stock indices were down across the board ahead of their 3 p.mm. CT close, with the dollar lower versus peer currencies.

Oil trading was driven largely by fundamentals, with the oil complex giving up overnight gains after Paris-based IEA issued its report Thursday morning projecting 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.

EIA's new STEO report cut its demand outlook for 2016 by 172,000 bpd from estimates in January, projecting a 1.2 million bpd consumption growth rate to 95.02 million bpd. That's up from 2015 when consumption grew at an estimated 1.4 million bpd to 93.8 million bpd.

For 2017, consumption is projected to grow at a 1.5 million bpd rate to 96.483 million bpd, reflecting a 129,000 bpd downward revision from January estimates.

Meantime, EIA is set to issue its U.S. supply data for the week-ended Feb. 5 Wednesday morning, with the American Petroleum Institute set to issue its data at 3:30 p.m. CT.

A survey anticipates the weekly reports to show an average crude stock build of 4.0 million bbl. The survey also shows gasoline stocks to have climbed 300,000 bbl, while distillates are estimated to have risen by 1.5 million bpd for the week reviewed.

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