Oil Reverses on Oversupply Fears
NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved lower at the open of regular trade Thursday morning on renewed concerns about oversupply, with a surprise weekly drop in domestic crude supply offset by reports of an increase in Iraqi oil supply.
At 9:00 AM ET, NYMEX May West Texas Intermediate crude oil futures fell 31cts to $37.44 bbl while June Brent crude futures on the IntercontinentalExchange declined 40cts to $39.44 bbl. The Brent premium over WTI added eased 9cts to $2.00 bbl.
NYMEX May ULSD futures gave back some of Wednesday's 6% rally, down 0.83cts to $1.1320 gallon, while May RBOB futures eased 0.69cts to $1.3878 gallon.
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On Wall Street, equities retreated while the dollar reversed up off a six-month low as minutes of last month's Federal Reserve meeting confirmed the central bank is going to be cautious about raising rates this year.
Today's downside reversal follows Wednesday's rally triggered by data from the Energy Information Administration, which showed a U.S crude stock draw of 4.9 million bbl to 529.9 million bbl for the week-ended April 1. It was the first draw in commercial crude supply in eight weeks, although inventory remains 10% above year ago levels and there remains a glut of global supply.
EIA also reported demand for oil products fell and gasoline and distillate stocks rose unexpectedly for the week.
The market is also uncertain whether leading oil producers will freeze output at January levels as proposed earlier this year by Saudi Arabia and Russia.
The 13-member Organization of Petroleum Exporting Countries is set to meet with non-OPEC producers on April 17 in Qatar to discuss the proposal, but it's unclear if Saudi Arabia would freeze their output because Iran has declined to do so, instead ramping up production following relief from sanctions in January.
A Kuwaiti official said there's a possibility of a deal in Qatar, but there remains a high degree of doubt because the Saudis, with their large reserve base, hold sway. Moreover, analysts note that a freeze is not a production cut, and would do little to reduce the supply overhang.
Additionally, Iraq's crude production rose to an all-time high of 4.46 million bpd in February, up 275,000 bpd from January, the oil ministry said. Crude oil exports from Iraq's two southern ports have risen to an average of 3.494 million bpd in April, an official from the state-run South Oil Company told Reuters today, above the 3.286 million bpd average in March.
Goldman Sachs said a sustained OPEC production freeze or cut is unlikely. Instead the bank expects OPEC production to rise by 600,000 bpd this year and by 500,000 bpd in 2017.
George Orwel can be reached at george.orwel@dtn.com
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