Oil Lower Ahead of EIA Report

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and August Brent crude on the IntercontinentalExchange were lower Thursday morning as members of the Organization of the Petroleum Exporting Countries meet in Vienna and ahead of the 11:00 AM ET release of weekly inventory data from the Energy Information Administration.

At 9:00 AM ET, NYMEX July West Texas Intermediate crude futures were down 62cts at $48.39 bbl and ICE August Brent was 45cts lower at $49.27 bbl. NYMEX July ULSD futures were flat at $1.49920 gallon, with the July RBOB contract up 0.55cts at $1.6208.

Shortly after 9:00 AM ET however, oil products reversed lower and the crude grades added to their decline, moving to the lower end of Wednesday's trade range.

Traders are taking a cautious approach in front of the 10:00 AM ET announcement by OPEC, with oil ministers contemplating the state of the oil industry and if the cartel should take action. Expectations for a coordinated production cut are low, with an attempt to shore up oil prices in April with a coordinated cut by OPEC and non-OPEC members nixed by Saudi Arabia because Iran had declined to join the coordinated effort.

Iran, which won relief from sanctions on its oil exports in January, has steadfastly rebuffed entreaties to cuts its output until it returns to pre-sanction levels.

OPEC abandoned its production quota system in November 2014 in the face of rising global supplies led by the United States, instead moving to a market strategy approach designed by the Saudis. Instead of cutting production, the Saudis have increased their output to shore up and expand its customer base.

The market is also positioning in front of inventory data for the week ended May 27 from the EIA, with the American Petroleum Institute reporting late Wednesday an unexpected 2.35 million bbl build in commercial crude oil inventories and draws for oil products. The crude build, which contrasted with expectations for a 3.0 million bbl decline, has since pressured WTI futures.

The API also reported a gasoline supply draw of 1.5 million bbl compared with estimates for a 500,000 bbl decline, and detailed a 1.2 million bbl draw in distillates that was 200,000 bbl more than anticipated. The data lent upside support for oil products earlier in the session.

Support for oil futures was also underpinned by a weaker U.S. dollar earlier in the session, which has since reversed higher. The greenback strengthened after the European Central Bank this morning left its benchmark interest rate unchanged at zero, and expanded its stimulus program announced in March to include buying corporate bonds.

Also, ADP payroll service provider said in its National Employment Report this morning that the United States added 173,000 private sector jobs in May, near market estimates for job growth of 175,000.

The ADP report is an imperfect precursor to the Labor Department's nonfarm payroll report due out Friday morning. The Labor Department this morning reported initial unemployment claims during the week ended May 28 declined 1,000 to 267,000, and the four-week average fell 1,750 to 278,500. It was the 65 consecutive weeks in which the four-week average has held below 300,000, the longest such period since 1973.

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

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Brian Milne