NYMEX Oil Futures End Shallowly Mixed

CRANBURY, N.J. (DTN) -- July oil futures on the New York Mercantile Exchange ended shallowly mixed in a choppy session Wednesday ahead of weekly data on U.S. oil inventories and the biannual meeting of the Organization of the Petroleum Exporting Countries on Thursday, with a bevy of domestic and global economic data ranging from disappointing to modestly supportive adding to the twists and turns in the market.
NYMEX July West Texas Intermediate crude futures settled down 9cts at $49.01 bbl, paring a decline to a $47.75 one-week low after testing the $50 bbl psychological benchmark on Tuesday.
"It is possible that a technically overbought condition following a $6.50 rally from the May 10th low fuels long-liquidation ahead of this week's EIA report, OPEC meeting Thursday and Friday's U.S. jobs data," said R.J. O'Brien in their daily market commentary this morning.
The market expects U.S. commercial crude oil inventory to have been drawn down by 3.0 million bbl last week when the American Petroleum Institute reports their weekly data at 4:30 PM ET, with the Energy Information Administration set to release their weekly statistics at 11:00 a.m. EDT Thursday, with both reports delayed a day by Monday's observance of Memorial Day.
August Brent crude on the IntercontinentalExchange settled down 17cts at $49.72, trading at $50 bbl late morning.
NYMEX oil products reversed losses after testing support to end fractionally higher during the first session with the July contract as nearest delivery. NYMEX July ULSD futures settled up 0.18cts at $1.4989 gallon after trading at a $1.4662 one-week spot low, while RBOB futures ended the session with a fractional 0.19cts gain at $1.6153 gallon, reversing off a $1.5761 two-week spot low.
Oil products have turned in mixed performances, with RBOB pressured by last week's unexpected 2.0 million bbl build reported for the week ended May 20, while distillates found underlying support from a string of six weekly inventory drawdowns. The market estimates gasoline inventory was drawn down 500,000 bbl during the week leading up to the Memorial Day holiday weekend with distillate supply seen declining by 1.0 million bbl.
Oil products were also lent support by a worker's action in France that began May 23, with four refineries offline due to a widespread strike over labor reforms being pushed by French President Francois Hollande. Reports indicate a gasoline shortage in France is easing, however.
Also, BB&T Capital Markets recently highlighted the weakness in U.S. freight movements that has limited demand for diesel fuel, comparing current market conditions to 2006 "when trucking foreshadowed [an economic] downturn."
"Whether there is an official GDP recession is a moot point as there is already a 'freight recession,'" said analysts, adding that truck tonnage has declined in three out of the four months this year through April.
A weaker U.S. dollar limited the decline in WTI futures today, with the greenback little moved by supportive yet lukewarm domestic data and bearish statistics and appraisals globally.
This afternoon, the Federal Reserve released its Beige Book of economic activity, with the 12 Federal Reserve Districts reporting modest economic growth in April through mid-May.
"Several Districts noted that contacts had generally optimistic outlooks, with firms expecting growth either to continue at its current pace or to increase," notes the report, which is published eight times annually.
Major U.S. equity indices reversed higher, albeit tentatively, in the minutes following the report's release, although the dollar remained under pressure.
Midmorning, the Institute of Supply Management reported a 0.5% increase in the purchasing manager's index in May to 51.3%, the third consecutive month in which the manufacturing sector in the United States has expanded, while contrasting with expectations for a dip to 50.3%.
However, U.S. manufacturing data contrasted with weakness for the sector in China, with official state data indicating manufacturing in May held just above the demarcation line for growth and contraction.
Also bearish, officials with the Organization for Economic Cooperation and Development today said the "global economy is stuck in a low-growth trap," and warned policymakers of the consequences of inaction. OECD, which consists of 34 country members, said escaping the malaise requires "more coordinated and comprehensive use of fiscal, monetary and structural policies."
"Weak trade growth, sluggish investment, subdued wages and slower activity in key emerging markets will all contribute to modest global GDP growth of 3% in 2016, essentially the same level as in 2015," said OECD in their Outlook. "Global recovery is expected to improve only to 3.3% in 2017."
In addition to weekly supply data from the EIA, the market awaits the communique out of Vienna following OPEC's 169th meeting. OPEC, which abandoned its quota system in November 2014, is not expected to reach a consensus for a coordinated production cut.
Should OPEC surprise the market with such a reduction in output, the market would rally. However, Iran is reported to still resist joining in on a joint reduction in production as they continue to ramp up output following the end of sanctions on their exports in January. And Saudi Arabia, which nixed an expected coordinated cut in production by OPEC and non-OPEC members in Doha in April because Iran declined to participate is not expected to change course this week, with a great deal of acrimony existing between the two countries.
Thursday's meeting will be the first for Saudi's new oil minister, Khalid al-Falih, who was appointed in May, succeeding Ali al-Naimi who served as the kingdom's oil minister since 1995.
A survey by Reuters found OPEC production declined 120,000 bpd in May from April to 32.52 million bpd, with lower output from Nigeria more than offsetting higher production from Iran and other members in the Persian Gulf.


Brian L. Milne can be reached at brian.milne@dtn.com

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