NEW YORK (DTN) -- New York Mercantile Exchange oil futures extended losses as the regular trade session got underway Wednesday morning after Saudi Arabia dismissed the likelihood of a production cut and traders looked ahead to a weekly oil report that's expected to show crude oil inventories in the United States rising to new highs.
The Energy Information Administration is set to issue its data for the week ended Feb. 19 at 9:30 a.m. CT with expectations that it would show higher crude oil supplies intensified after the American Petroleum Institute issued a bearish report late Tuesday. API reported a 7.1 million barrel crude stock build, about three times the 2.2 million bbl increase the market expected.
At 8 a.m. CT, NYMEX April West Texas Intermediate crude futures were $1.00 lower at $30.87 bbl, near a 1-1/2 week low on the spot continuation chart of $30.68. The April-May contango increased 12cts to $1.85 bbl, reflecting short-term oversupply.
April Brent crude oil futures on the IntercontinentalExchange fell 61 cents to $32.66 bbl, off a one-week low of $32.37, with Brent's premium over WTI rising 39 cents to $1.79 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 fell 1.12cts to $1.0109 gallon, off a 1-1/2 week low of $1.0005, while March RBOB futures eased 0.38 cents to $0.9625 gallon, off a three-day low of $0.9463.
On Wall Street, U.S. stock indices tracked eurozone bourses lower on risk-off trade while the dollar index rose to a three-week high. The sterling pound fell to the lowest level since 2009 on concern over a possible British exit from the European Union. The U.S. market will also consider new single home sales data for January due at 9 a.m. CT.
The issue of excess supply continues to guide oil trading. API's products data issued late Tuesday were also bearish, showing a 600,000 bbl gasoline stock increase versus a projected draw of 1.5 million bbl. Distillate fuel stocks fell 300,000 bbl compared to a projected stock drawdown of 2.7 million bbl.
Meantime, while rejecting oil production cuts, Saudi Oil Minister Ali al-Naimi endorsed freezing oil output at January levels as per last week's tentative deal with Russia, conditioned on other members of the Organization of Petroleum Exporting Countries joining in. OPEC members who support the Saudi-Russia plan to freeze output are planning a mid-March meeting. Iraq has pledged to freeze its output if an agreement concluded.
However, the plan to freeze output is complicated by Iran that insists on ramping up its production to pre-sanctions level of about 3.6 million barrels per day from 2.99 million bpd in January. Iran's oil minister Bijan Zanganeh on Tuesday ridiculed talk of joining a production freeze with Russia and Saudi Arabia.
Analysts also said the plan to merely keep output from rising is not enough to stabilize the market and stem the falling oil prices since OPEC production is already high. The EIA's Short-term Energy Outlook earlier this month projected OPEC production would rise 700,000 bpd in 2016 from 2015's 31.6 million output rate. OPEC surplus crude output capacity, which averaged 1.6 million bpd in 2015, is expected to be 2.0 million bpd in 2016 and 1.9 million bpd in 2017.
George Orwel can be reached at firstname.lastname@example.org
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