Oil Declines on Rising Supply

NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved lower Tuesday morning, extending losses for the third straight session amid renewed concern over rising global oil supply while demand growth is threatened by lingering economic woes in Asia and elsewhere.

"We are going to see more oil production out of Saudi Arabia, Iran and the North Sea adding to supply overhang, when there are [also] concerns about demand," said analyst Phil Flynn at Price Futures in Chicago.

He added, "Those demand fears were exacerbated when the International Monetary Fund warned that Asia is still facing severe headwinds from a still weak global recovery, slowing global trade, and the short-term impact of China's growth transition."

At last look, NYMEX June West Texas Intermediate crude oil futures were trading near a four-day low, down 70cts at $44.08 bbl. July Brent futures on the IntercontinentalExchange fell 54cts to $45.29 bbl, off a five-day low at $45.21.

In products trade, NYMEX June ULSD futures slid 1.83cts to $1.3372 gallon, off a five-day low of $1.3353. NYMEX June RBOB futures dropped 4.38cts to $1.5190 gallon, near a $1.5160 one-week spot low.

On Wall Street, U.S. equity indices were sharply lower this morning with Dow Jones Industrial Average posting a better-than 150-point loss on risk-off trade, while the dollar fell to the lowest level since Jan. 15, 2015 versus a basket of six rival currencies. Overseas markets were also weak.

Oil and other commodities declined overnight after data showed the China manufacturing purchasing managers' index fell to 49.4 for April from March's reading of 49.0. That was the 14th consecutive month of contraction as reported by Markit Economics and it also fell short of market expectations.

The market refocused on global oil supply glut following a wire report saying production by the Organization of Petroleum Exporting Countries rose 0.5% in April. The report said OPEC production was up 170,000 bpd to 32.64 million bpd mostly due to increases by member countries in the Middle East.

Saudi Arabian oil exports reportedly averaged 10.5 million bpd in April, up from 3.2 million bpd in March, while Iraq's oil exports from southern Basra oilfields averaged 3.364 million bpd last month.

According to the Energy Information Administration, Iraq is now the second largest OPEC oil supplier. Combined with production from the northern Kurdistan region, Iraq's total output rose to 4.1 million bpd in 2015.

Iran has also been raising its output after international sanctions were lifted in January, with exports to Asia ramped up, including 400,000 bpd to South Korea, up from 100,000 bpd in January, said Oil Minister Binjan Zanganeh. Iran hopes to raise its production to 4.0 million bpd. Citing secondary sources, OPEC in its most recent Monthly Oil Market Report showed Iran's output at 3.291 million bpd, up 139,400 bpd from February.

Increased supplies of Russian Urals crude and North Sea Brent crude were also reportedly on the uptrend.

The increase in overseas supply will likely offset falling U.S. crude oil production, with U.S. Energy Secretary Ernest Moniz saying domestic output is projected to drop by 600,000 bpd this year, with the EIA reporting 2015 U.S. production in 2015 averaged 9.431 million bpd.

The market awaits U.S. oil data for the week-ended April 29, with the American Petroleum Institute set to issue its report at 4:30 PM ET and the EIA their report at 10:30 AM ET Wednesday. The market anticipates domestic crude inventory increased 3.0 million bbl last week.

On Friday, the market will closely review the Labor Department's nonfarm employment report for April.

Next week, short-term outlooks on the global oil market will be released. 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 MOMR on May 13.

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