Oil Mostly Lower Thursday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved mixed with a downside bias Thursday morning as the focus shifted back to excess supply and worries about China after a more than 6% drop in the Shanghai equities early Thursday.

However, the downside for the oil complex was limited by strong U.S. economic data issued this morning and ongoing talks of a possible freeze in production by the Organization of Petroleum Exporting Countries. The market continues to be volatile.

The supply glut was underscored by the latest weekly oil data from the Energy Information Administration. The federal agency on Wednesday reported crude oil stocks rose 3.5 million barrel during the week-ended Feb. 19 to a new high of 507.6 million bbl.

At the Cushing supply hub in Oklahoma, crude stocks rose by 400,000 bbl to a record 65.1 million bbl, the fourth weekly gain, with stocks at 89.2% of working capacity at the terminal. Cushing storage is important since it's the delivery point for NYMEX West Texas Intermediate crude futures contract.

"[Oil] inventories and the shape of the futures curve move in lockstep, and changes in inventories can often foreshadow moves in the shape of the curve and the prompt price of oil," said Barclays Capital. "We see further weakness in time-spreads and an uphill battle for prompt oil prices in first half of 16."

The bank added, "We expect Brent prices to average $33 during this timeframe. U.S. production declines will help reduce the rate of U.S. stock-builds and will flatten WTI time-spreads in the summer months."

At 8 a.m. CT, NYMEX April WTI crude futures fell 38 cents to $31.77 bbl while April Brent crude futures on IntercontinentalExchange dropped 38 cents to $34.13 bbl. The Brent premium over WTI widened 10 cents to $2.36 bbl, boosted by record high inventory at Cushing.

In products trade, NYMEX March ULSD futures eased 0.91 cents to $1.0503 gallon while March RBOB futures edged up 0.25 cents to $1.0129 gallon.

On Wall Street, major U.S. stock indices were slightly lower in choppy trade, lent support after the Commerce Department reported durable goods orders rose 4.9% last month, rebounding from a 4.6% plunge in December.

The durable goods data overshadowed Labor Department's data showing weekly jobless claims rose by a more-than-expected 10,000 to 272,000, but remained near a post-recession low.

In currency trade, the dollar was up but off Wednesday's three-week high versus its major peers.

On supply, U.S. oil production has remained above 9.0 million barrels per day in recent months despite the ongoing drop in drilling activity. Last week, output fell by about 30,000 bpd to 9.1 million bpd, according to EIA.

A key question is whether OPEC would freeze production and potentially reduce cartel output to stabilize prices. Saudi Arabian Oil Minister Ali al-Naimi on Tuesday rejected calls for a cut while endorsing a freeze in output at the January level as per last week's tentative deal with Russia on condition that other OPEC members join in.

Mexico said it's willing to meet with OPEC over the planned output freeze but Iran called the freeze "ridiculous," and is planning to increase its crude oil production by some 600,000 bpd versus its 2.99 million bpd January output level. Iran has said it needs to boost its supply to a pre-sanctions level of about 3.6 million bpd before other considerations.

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