Oil Lower on Supply Glut Concerns

NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved down for the second straight session, with renewed concern over a glut of supply merging with a 0.2% drop in the producer price index in February to pressure the paper market.

"West Texas Intermediate was the weakest segment of the wider petroleum complex as the lack of an international producer agreement to limit supply was compounded by worry over an anticipated further build in US commercial crude oil inventories for the week ended March 11," said analyst Tim Evans at Citi Futures.

At 9 a.m. ET, NYMEX April WTI crude futures fell 82cts to $36.36 bbl, off a better than one-week low of $36.06. Options on the April WTI contract expire Wednesday. IntercontinentalExchange May Brent crude futures fell 87cts to $38.66 bbl, off a better than one-week low of $38.32. Short-term technical indicators have also turned lower for both spot-month WTI and Brent contracts.

In products trade, NYMEX April ULSD futures fell 1.70cts to $1.1795 gallon, off a fresh one-week low of $1.1686. April RBOB futures declined 2.11cts to $1.4015 gallon, off a one-week low of $1.3839.

On Wall Street, major stock indices were lower while the dollar climbed to a three-day high before reversing, as the U.S. Federal Reserve begins its two-day policy meeting that's expected to leave interest rates unchanged.

Supply fears intensified after a survey this morning projected another weekly crude stock build in the United States and Iran rejected a plan by Russia and the Organization of Petroleum Exporting Countries to freeze production at January levels.

On Sunday, Iran's oil minister Bijan Zaganeh said Tehran wouldn't join the plan to freeze output until its own production rate, which currently sits at 2.0 million bpd, rises to 4.0 million bpd. Iran won relief from sanctions on its crude exports in January, and had promised that it would increase production. Analysts said the oil minister's comment dashed hope for an international deal, which was contingent on participation from all OPEC members and Russia.

A survey by Schneider Electric shows a consensus view crude stocks for the week-ended March 11 increased 3.3 million bbl, gasoline stocks declined 3.5 million bbl and distillate stocks were drawn down 1.3 million bbl.

The American Petroleum Institute is set to release its weekly oil report at 4:30 p.m. ET while the Energy Information Administration is scheduled to issue its weekly oil data at 10:30 a.m. ET Wednesday.

Adding to the downside were technical pressure and growing sentiment among traders that the market has pushed values too far ahead of short-term supply and demand fundamentals that remain weak. Analysts also said the recent upturn in oil prices was not sustainable since oil shale producers would be incentivized to boost output should prices rally above $40 bbl.

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