Oil Mostly Lower on Weak Economy

NEW YORK (DTN) -- New York Mercantile Exchange oil futures were mixed early Tuesday with a downside bias amid renewed concerns about the global economy, weak demand and a glut of supply domestically and globally.

The International Monetary Fund Managing Director Christine Largarde this morning warned that global growth is threatened by the slowdown in China, lower commodity prices, tightening monetary policies in some countries, and geopolitical risks.

Analysts said the risks mentioned by the IMF chief would impact the oil market by hampering demand growth. The uncertainty and risk dragged down global equities this morning.

"Some say that oil prices are falling due to skepticism about OPEC/non-OPEC production freeze but the real reason is skepticism about the strength of the global economy," said analyst Phil Flynn at Price Futures. "Sure, Russian oil output hit a 30-year high coming in at 10.91 million bpd in March and a Saudi prince is talking tough but it is the demand side of the market that is raising concerns."

He added, "Not only did the Energy Information Administration spook the oil market with a report that showed U.S. demand for gasoline fell in January for the first time in 14 months, overnight weak factory orders in Germany are raising concerns about another global slowdown."

At 9:00 a.m. ET, NYMEX May West Texas Intermediate crude oil futures were down 28cts at $35.42 bbl, off a fresh one-month spot low at $35.24, while the June Brent futures contract traded on the IntercontinentalExchange was down 23cts at $37.46 bbl, off a fresh one-month spot low of $37.27 bbl.

In products trade, NYMEX May ULSD futures eased 1.29cts to $1.0760 gallon, off a fresh one-month spot low of $1.0879, while May RBOB futures edged 0.93cts higher to $1.3863 gallon, off a $1.3717 gallon near one-month spot low.

On Wall Street, U.S. stock indices moved lower on risk-off trade, tracking a selloff in Europe following Largarde's comments this morning, while the U.S. dollar traded near a 5-1/2 month low versus peer currencies.

The dollar continues to come under pressure from last week's dovish comments by Federal Reserve Chair Janet Yellen. A weaker dollar supports WTI futures.

On supply, an early survey by Schneider Electric shows the market expects to see crude oil stockpiles in the United States increased during the week-ended March 31 by an average of 3.0 million bbl to a fresh record high, gasoline supplies down 1.5 million bbl and distillate stockpiles 300,000 bbl lower.

The American Petroleum Institute is scheduled to release its oil supply data at 4:30 p.m. ET and the Energy Information Administration its more definitive report on Wednesday morning.

On supply side of the ledger, the EIA's monthly report issued Monday revised demand for oil products for January.

"The market had great expectations for both substantially weaker demand and sharply higher supply in January, but EIA's March Petroleum Supply Monthly disappointed on both regards," said Barclays Capital, saying the data was worse than anticipated. "Total consumption declined 1% year-on-year, driven by distillate demand, which was down 10% year-on-year."

There are also worries about overseas supply after recent comments from Iran and Saudi Arabia. Iran's Oil Minister Bijan Zanganeh said Monday Tehran won't freeze its output as demanded by Saudi Arabia, having won sanctions relief in January.

Saudi Arabian Deputy Crown Prince Mohammed bin Salman late last week said they won't freeze their output unless Iran does the same, reversing their previous position. These comments raise doubts about whether the scheduled April 17 meeting by the Organization of Petroleum Exporting Countries and non-OPEC oil producers would succeed in reining in oil supply.

Analysts have poked many holes in the output freeze plan, noting a freeze is not a cut, and that Russia, Saudi Arabia and Iraq already produced at or near record highs during January.

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