Oil Futures Down on Higher OPEC Supply

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower Monday afternoon as a report showing higher oil supply by the 13-member Organization of Petroleum Exporting Countries overshadowed a weakening U.S. dollar.

The wire report on OPEC production prompted profit-taking by traders whose sentiment was additionally dimmed by weak U.S. economic data that hinted at the potential for weaker oil demand, said analysts.

The losses come on the first trading day for the month of May after the oil futures complex posted huge gains in April, with West Texas Intermediate up 19.8% last month.

"[There is] concern that OPEC production is on the rise, with Iranian output climbing to between 3.4 million bpd and 3.5 million bpd in April, and Iraqi exports said to be running at a near-record level," said analyst Tim Evans at Citi Futures. "Weak manufacturing PMI data for April may be dampening demand expectations as well. With the market looking overbought, we see risk of a significant intermediate-term correction to the downside, although a top may not yet be in place."

NYMEX June WTI crude oil futures settled down $1.14 at $44.78 bbl, off a $44.54 three-day low. July Brent crude oil futures on the IntercontinentalExchange fell $1.54 to $45.83 bbl at settlement.

In products trade, NYMEX June ULSD futures tumbled 3.05cts to $1.3555 gallon, off a three-day low of $1.3495. NYMEX June RBOB futures dropped 4.16cts to a $1.5628 gallon settlement.

On Wall Street, U.S. equity indices were higher this afternoon while the dollar dropped to the lowest level since January 2015 versus a basket of six rival currencies.

The oil futures complex has been volatile in recent weeks, with traders focused not only supply but also expectations for an improvement in demand and on the economy.

April data out today from the Institute for Supply Management showing U.S. manufacturing sector grew at a slower pace than expected raised concern about the prospect of weaker energy demand. The ISM's manufacturing index fell by a point to 50.8 points in April, with 50 the midpoint separating growth from a contraction.

A new report by Reuters said OPEC production rose by 0.5% in April from March renewed concern over the massive global oil glut. The report said OPEC production was up 170,000 bpd to 32.64 million bpd, while oil exports from Iraq and Russia rose in April.

OPEC output could have been higher if there were no disruptions to supply in Kuwait, Nigeria, and Venezuela last month. Kuwait's production was partially shut due to a three-day strike by oil workers, Nigerian output was disrupted by a pipeline outage and Venezuelan supply is still being disrupted by power outages.

International Energy Agency Executive Director Fatih Birol said on Sunday (5/1) that oil prices may have bottomed if no major global economic problem emerges. He said during a G-7 meeting of oil ministers in Japan that oil prices are likely to move higher rather than lower.

The market awaits weekly U.S. oil data due out on Tuesday from the American Petroleum Institute and on Wednesday by the Energy Information Administration. An early survey shows the market expects U.S. crude oil supplies to have increased by 3.0 million bbl during the week-ended April 29.

Looking ahead, EIA issues its Short-Term Energy Outlook on May 10, the International Energy Agency's Oil Market Report is set for release on May 12, and OPEC will issue its Monthly Oil market Report on May 13.

On the economic front, the biggest data this week is the April payroll report due out Friday (5/6) from the Labor Department.

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