Oil Futures Settle Lower on Supply

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower for the third straight session Tuesday afternoon as rising output from the Middle East and the North Sea renewed concern over a supply overhang, with demand growth also seen threatened by economic woes in Asia and elsewhere.

"The [oil] markets have extended Monday's decline as part of a further retreat...with reports of increased OPEC production for April helping to counterbalance the support of declining US output," said analyst Tim Evans at Citi Futures. "The recovery of Iranian output since sanctions were lifted in January has been a key element in that story."

Others agreed.

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

NYMEX June West Texas Intermediate crude oil futures settled down $1.13 at $43.65 per barrel (bbl), off a five-day low of $43.32. July Brent crude futures on the IntercontinentalExchange dropped 86 cents to $44.97 bbl at settlement, off a one-week spot low at $44.62.

In products trade, NYMEX June ULSD futures settled 2.21 cents lower at $1.3334 gallon, off a five-day low of $1.3219. NYMEX June RBOB futures plunged 5.28 cents to a $1.51 gallon settlement, ending regular trade near a $1.5064 two-week spot low.

The market refocused on the 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 barrels per day (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. The country's output reached slightly above 3.4 million bpd in April, up about 26% from level seen in December 2015, said analyst Evans.

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. The Islamic Republic is targeting returning production to a pre-sanctions rate to 4.0 million bpd by the end of this year.

Oil futures also declined 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 data renewed concerns about China's economic slowdown and its impact on demand for oil.

The market awaits weekly U.S. oil supply data due out at 4:30 PM ET from the American Petroleum Institute. A Schneider Electric survey showed the market expects to see an average 700,000 bbl crude stock build for the week-ended April 29, with gasoline stockpiles seen down 1.5 million bbl and distillate supplies expected down 500,000 bbl.

The EIA will also release its weekly oil supply data at 10:30 a.m. EDT Wednesday.

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