Oil Lower on Bearish Fundamentals

NEW YORK (DTN) -- New York Mercantile Exchange oil futures reversed lower Wednesday morning as traders took profits after Saudi Arabia ruled out cutting its production just days before a meeting with Russia and other leading producers in Doha for discussions on freezing output.

The oil futures complex also came under pressure after the American Petroleum Institute reported a big weekly build in domestic U.S. crude oil inventories while a new report from the Organization of Petroleum Exporting Countries trimmed its estimate for global demand growth this year.

At 9:00 AM ET, NYMEX May West Texas Intermediate crude futures eased 43cts to $41.74 bbl, reversing off Tuesday's 4-1/2 month high of $42.25. June Brent crude futures on the IntercontinentalExchange slipped 35cts to $44.34 bbl, reversing off Tuesday's $44.81 four-month high on the spot continuation chart.

In products trade, NYMEX May ULSD futures eased 0.05cts to $1.2754 gallon, sliding from a $1.2846 four-month spot high posted Tuesday. May RBOB futures fell 1.17cts to $1.5226 gallon, reversing from Tuesday's seven-month spot high of $1.5386.

On Wall Street, U.S. equities were higher in futures trading this morning despite new data showing a disappointing 0.3% drop in retail sales in March, while the U.S. dollar rose to a three-day high after bouncing off Tuesday's 7-1/2 month low. A stronger dollar pressures WTI futures.

Oil futures rallied Tuesday after a report from Interfax news agency said Russia and Saudi Arabia have struck a preliminary agreement to freeze their oil production at their January output level. The Kremlin also said "there's hope" for a deal regardless of a lack of participation by Iran in the output freeze plan.

However, today Saudi Arabian oil minister Ali al-Naimi said the kingdom won't cut production, which was near a record high in January. Naimi's comment came after the kingdom's deputy crown prince said last week that Iran must also commit to freezing its production at the Doha meeting or there won't be a deal.

Iran has repeatedly said it would only discuss a freeze proposal after it increased production to its pre-sanctions level, with the Islamic Republic escaping sanctions in January. This morning, Iran's Oil Minister Bijan Zanganeh said he won't attend the Doha meeting.

OPEC's Monthly Oil Market Report for April issued this morning cut global oil demand growth rate estimates in 2016 by 50,000 bpd to 1.2 million bpd, with the cartel now expecting global consumption at 94.18 million bpd. OPEC projects U.S. demand growth at 250,000 bpd this year, down from a 300,000 bpd year-on-year growth rate for 2015.

The MOMR forecast non-OPEC oil supply to drop 730,000 bpd this year from 2015 to 56.39 million bpd, 30,000 bpd more than forecast in March.

Still, OPEC said preliminary data shows global oil supply increased by 170,000 bpd in March to 95.68 million bpd.

Late Tuesday, the API reported U.S. crude stockpiles increased 6.2 million bbl while analysts expected a 700,000 bbl stock draw for the week-ended April 8. The trade group showed a 1.6 million bbl decline in domestic gasoline inventories and a 500,000 bbl drawdown in middle distillates.

The U.S. Energy Information Administration is scheduled to release its more definitive weekly supply survey at 10:30 AM ET.

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