Oil Futures Lower on Profit-Taking

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower this afternoon as traders reassessed the impact of wildfires on Canada's oil sands production, booking profits after deeming the supply outage was less than initially thought.

It comes after cooler temperatures and light rains enabled Canada to gain control of a major wildfire that disrupted about 1 million barrels per day (bpd) of the Alberta oil sands production over the past week.

"The focus has shifted from the wildfire threat to oil sands operations to the prospect of recovery, as firefighters take advantage of improved weather conditions to contain the blaze," said analyst Tim Evans at Citi Futures in New York. "While an estimated 1.0 million bpd of production remains offline, there is talk now that some operations could resume as early as next week."

NYMEX June West Texas Intermediate crude futures had tumbled $1.22 to $43.44 per barrel (bbl), off a three-session low at $43.27. July Brent on the ICE futures complex fell $1.74 to $43.63 bbl, off a $43.50 three-week high.

In products trade, NYMEX June ULSD futures plummeted 5.10 cents to a $1.2863 gallon settlement, off a three-week low of $1.2814. The NYMEX June RBOB futures contract dropped 5.35 cents to $1.4427 gallon, off a $1.4382 three-week spot low.

On Wall Street, equities were mixed while the dollar gained 0.2% after New York Fed President William Dudley expressed optimism about the U.S. economy, saying that he sees enough growth for the Fed to get back to raising its benchmark interest rate.

The Fed raised rates back in December, but has since held off from additional increases due to soft first quarter economic data. Dudley's comments were seen as hawkish on monetary policy, which is bearish for oil prices.

The oil futures complex also came under pressure after market intelligence firm Genscape reported that crude inventories at Cushing, Oklahoma, which is the delivery point for NYMEX West Texas Intermediate, increased by 1.4 million bpd during the week-ended May 6.

In addition, the appointment of a new oil minister in Saudi Arabia indicates the world's largest crude oil exporter will likely continue with its current policy of pumping more supply to the market, analysts said.

The Saudis replaced long-serving oil minister Ali al-Naimi with Khalid al-Falih, who has a strong bond with the powerful Deputy Crown Prince Mohammed bin Salman, who oversees the kingdom's energy, economic and defense policies. The new leadership is expected to use oil to achieve its geopolitical goals, which suggests they are likely to boost output and maximize their market-share rather than cut supply, analysts said.

While Falih tried to reassure the market by saying there won't be a change in Saudi oil policy, analysts said the chemistry and understanding Naimi has had with fellow oil ministers from other members of the Organization of Petroleum Exporting Countries will be lost, which could make any deal to freeze or cut the cartel's output more difficult. OPEC has a scheduled meeting in Vienna on June 2 to debate whether or not to reduce production.

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