Oil Lower on Oversupply Concerns

NEW YORK (DTN) -- New York Mercantile Exchange oil futures were mixed Tuesday morning with the April West Texas Intermediate crude oil contract dipping below Monday's settlement while March RBOB and ULSD futures struggled to hold on to modest gains before relenting, moving to the downside as oversupply concerns resurfaced.

Market sentiment has changed since Saudi Arabia and Russia agreed last week to freeze their production if other members of the Organization of Petroleum Exporting Countries join them after an Iranian official Tuesday pooh-poohed the deal. The official's comment that it would be "ridiculous" for Iran to freeze production at January's output rate adds to the market's uncertainty.

Analysts said it was clear Iran wasn't going to go along with plans to freeze output after winning sanctions relief last month. Iran, which produced 2.99 million barrels per day in January according to the International Energy Agency, plans to hike production to pre-sanction levels of roughly 3.6 million bpd.

Also, IEA's projection of an accelerated downtrend for U.S. oil production that would help rebalance the global oil market next year has been put into context after the market advanced on the outlook Monday. IEA's expected rebalancing comes too late for a market that's concerned about short-term oversupply, analysts said.

At 8 a.m. CT, NYMEX April West Texas Intermediate crude futures fell 14 cents to $33.25 barrel, moving into the nearby delivery position after the March WTI contract rolled off the board Monday at $31.48 bbl. The April-May contango at $1.74 bbl suggests short-term excess supply.

April Brent crude oil futures on the IntercontinentalExchange contract were up 16 cents at $34.85 bbl, with Brent's premium over WTI at $1.60 bbl amid record high inventory at the Cushing supply hub, the delivery location for NYMEX WTI futures.

In products trade, the NYMEX March ULSD futures contract edged up 0.73 cents to $1.0624 gallon while March RBOB futures were near flat at $1.0008 gallon. Since 8 a.m. CT, all the contracts have reversed to the downside.

On Wall Street, U.S. stock indices tracked eurozone bourses lower after data showed weak German business confidence and slower growth in U.S. home sales. The dollar has recouped losses after easing overnight, with the greenback heading back towards Monday's three-week high.

Near-term, a Schneider Electric survey showed analysts are expecting crude inventories in the United States to have risen during the week-ended Feb. 19, with the average of the forecasts for a 2.2 million bbl stock build. At 504.1 million bbl, U.S. crude stocks are 18.4% higher than year-earlier levels and the highest since 1930.

The survey showed analysts expect gasoline stockpiles to have declined by 1.5 million bbl and distillate stocks to have been drawn down by 2.7 million bbl.

The American Petroleum Institute will issue its weekly supply report at 3:30 p.m. CT Tuesday while the U.S. Energy Information Administration's report is scheduled for release at 9:30 a.m. CT Wednesday.

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