Oil Futures Sink on Day, Week

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures with nearest delivery and the front month Brent contract on the IntercontinentalExchange all moved lower in trading on the first day of the second quarter, and made sharp weekly losses as the likelihood of coordinated action by major international oil producers to address a global supply glut eroded.

West Texas Intermediate, Brent and RBOB futures all swung to two-week lows and ULSD a one-month low as comments by a Saudi prince stating the kingdom would agree to a freeze in production only if all other producers also agreed to a cap appeared to nix an already shaky proposal ahead of an April 17 meeting in Doha.

WTI futures was under additional pressure by a stronger dollar, which reversed higher from Thursday's 5-1/2 month low on a bullish jobs report that showed employment gains outpaced expectations, and manufacturing data that showed the sector extracted itself out of contraction in March for the first time since September 2015.

At settlement, NYMEX May WTI futures were down $1.55 at $36.79 while $2.67 or 6.8% lower than week prior, settling near a two-week spot low of $36.63 bbl.

In its first session as nearest delivery, June Brent crude on the ICE platform settled down $1.66 at $38.67 per barrel (bbl), with Brent $1.77 or 4.4% lower on the spot continuation chart from week prior. The contract slid to a $38.55 two-week spot low on the session.

NYMEX oil products also rolled the calendar forward following the April contracts' expiration end-day Thursday, with May ULSD futures sliding to a one-month low on the spot continuation chart of $1.1292 gallon and May RBOB futures to a $1.3980 gallon spot low today.

May ULSD futures settled down 5.38 cents at $1.1317 gallon which accounted for most of the 6.62 cents or 5.5% loss in spot value for ULSD futures on the week. May RBOB futures settled down 4.51 cents at $1.4016 gallon, and erased 6.43 cents or 4.4% in value for nearby delivery from week prior.

Today's losses follow sharp gains in March generated on speculation the global supply overhang would be brought into quicker balance if Russia, Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries would freeze production at their January output levels, prompting speculative long positions to grow and those short to cover positions.

Analysts had poked many holes in this theory, noting a freeze is not a cut and that Russia, Saudi Arabia and Iraq produced at or near record highs during January. Moreover, Iran had won relief from sanctions in January, and had declared it would boost production irrespective of the global supply glut, targeting 4.0 million bpd with Bloomberg reporting their production in March at 3.2 million bpd, up 100,000 bpd from February.

Higher production by OPEC in March, while the Energy Information Administration reported Wednesday that U.S. crude production remained above 9.0 million bpd at 9.022 million bpd and commercial crude inventory grew to 534.8 million bbl as of March 25, the highest inventory level since 1929, seemed to register to market participants that the supply glut remains intact. Moreover, the recent gains in new supply appear to corroborate an early year analysis by the International Energy Agency.

In January, IEA said commercial oil inventory held by the 34-country members of the Organization for Economic Cooperation and Development, which began 2016 with a record 350 million bbl overhang, would build by 285 million bbl in 2016.

WTI futures pared its decline after the 1:00 PM ET release of Baker Hughes rig count, which showed 10 fewer rigs drilling for oil this week, with oil services company reporting 362 active rigs seeking oil in the United States—the lowest point since November 2009. The crude contract then accelerated to the downside to print the session's low in market-on-close trade.

Brian L. Milne can be reached at brian.milne@dtn.com

(BAS)

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