Oil Lower Second Day in a Row

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange were lower for a second session early Friday on profit taking, consolidating within the week's trade range which included multi-month highs for the West Texas Intermediate, Brent and ULSD contracts.

WTI slipped below $50 bbl for the first time since Wednesday morning, and before the release of inventory data from the Energy Information Administration that showed a third consecutive draw down in U.S. commercial crude oil inventory during the week ended June 3. Lower WTI futures coincide with a stronger U.S. dollar, up for a second straight session following a decline to a one-month low on Wednesday.

At 9:00 AM ET, NYMEX July WTI futures were down 85cts at $49.71 bbl, although a little more than $1 higher on the week, with ICE August Brent 81cts lower at $51.14 yet nearly $1.50 higher than prior Friday. NYMEX July ULSD futures were down 1.72cts at $1.5340 gallon while 4.5cts higher since prior Friday. NYMEX July RBOB futures were down 1.52cts at $1.6034 gallon and modestly lower on the week.

Oil futures were also lower with equities early Friday on worry over U.S. and global economic growth, with a dismal employment report for May released prior Friday seen staying the hand of the Federal Reserve on interest rates next week when they meet on Tuesday and Wednesday (6/14-15). Federal Reserve Chair Janet Yellen signaled on Monday that central bank officials would not hike the federal funds rate next week, as May's unemployment report raised concern over the U.S. economy.

Low rates for longer weakened the U.S. dollar and supported oil futures and equities earlier this week. The dollar strengthened on several global features internationally, including an unexpected rate cut by the Bank of Korea, and after the Labor Department early Thursday reported a larger-than-expected decline in first-time claims for unemployment insurance for the week ended June 4 that was the lowest initial claims filings in 16 years.

Today the market awaits the preliminary reading of consumer confidence in June this morning, and the early afternoon release of active oil rigs operating in the United States by oil services provider Baker Hughes, Inc.

Prior Friday, Baker Hughes reported a nine-rig increase in active oil drilling, the first since March, with the EIA on Wednesday reporting a 10,000 bpd hike in domestic crude production for the week ended June 3, also the first increase since March.

A bullish market sentiment gained currency this week on increasing expectations a global oil supply-demand imbalance would move closer to equilibrium than previously expected.

That sentiment was fostered by unplanned oil supply disruptions globally during the second quarter including outages constraining 3.6 million bpd of oil supply in May. While many of the outages are short term, and inventory remains near record highs, a spotlight was shown on Nigeria, where militant attacks targeting its oil and gas infrastructure pressed the country's crude oil production to the lowest point it's been since the late 1980s at 1.4 million bpd.

Strong global oil demand, with the EIA forecasting an annual growth rate of 1.5 million bpd this year and in 2017, up 100,000 bpd in its Short-term Energy Outlook on Tuesday lent support. EIA said strong consumption growth is being driven by U.S. gasoline demand, China and India's transportation sector. EIA projects annual oil demand growth by China at 400,000 bpd this year and in 2017 with India's expansion in demand at 300,000 bpd this year and reaching parity with China in 2017 at 400,000 bpd.

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

(BAS)

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