Oil Futures Down on Growth Worries

Oil Futures Down on Growth Worries

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

CRANBURY, N.J. (DTN) -- Concern over global economic growth and the knock-on effect a slowing expansion would have on demand for oil pressured oil futures traded on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange Monday, with Monday's lower settlements the third straight for oil futures.

The decline coincided with selling in equities amid risk-off trade while the U.S. dollar was slightly softer during market on close trade for oil futures Monday after strengthening early day and weakening late day ahead of the Federal Open Market Committee's two-day meeting beginning Tuesday. Markets were also pressured ahead of Britain's June 23 referendum on whether the island nation should exit the European Union, which some analysts have said would slow Europe's economic growth in the short- and medium-term.

The cautious approach to today's trading comes with virtually no expectation central bank officials in the United States would decide to hike the federal funds rate this week following a dismal employment report for May released earlier this month. Following the report, Federal Reserve Chair Janet Yellen said the very small rate of job creation last month raised concern over U.S. economic growth, and warranted more data to determine whether the report was an anomaly or a new trend.

NYMEX July West Texas Intermediate futures settled down 19 cents at $48.88 bbl and near a $48.16 1-1/2 week low, with ICE August Brent also down 19 cents at $50.35 bbl after breaking below $50 for the first time since June 6 with a $49.61 bbl 1-1/2 week low.

NYMEX July ULSD futures settled a fractional 0.15 cent lower at $1.5145 gallon, paring a decline to a $1.4939 1-1/2 week low. NYMEX July RBOB futures were again the loss leader, declining 2.34 cents to $1.5362 gallon at settlement, trimming a decline to a $1.5188 one-month low on the spot continuation chart.

The three-session decline comes on the heels of multi-month highs by WTI, Brent and ULSD futures late last week on a growing bullish sentiment that an oversupplied market would find balance with demand quicker than previously projected, with the sentiment supported by planned and unplanned global oil supply outages totaling 3.6 million barrels per day (bpd) in May. Technical resistance amid an overbought market, a build in U.S. oil products inventories and lower demand, and an uptick in U.S. crude production with further increases projected in the near term reversed the rallies.

On Friday, June 10, Baker Hughes, Inc. reported a second consecutive increase in the number of rigs looking for oil in the United States, up three last week after a nine-rig increase week prior. The higher rig count coincided with a 10,000 bpd increase in domestic crude production during the week ended June 3, which was the first time since March domestic crude output gained.

Nigerian officials are reported to be in talks with the Niger Delta Avengers with the latter attacking the country's oil and gas infrastructure in seeking redress for economic and environmental grievances that have dropped Nigeria's crude oil production 800,000 bpd in May to 1.4 million bpd, the lowest rate since the late 1980s. Successful negotiations would allow Nigeria, a member of the Organization of the Petroleum Exporting Countries, to return some of the lost production.

Earlier today, OPEC in their Monthly Oil Market Report maintained their 2016 outlook for global oil demand to grow 1.2 million bpd and for non-OPEC supply to contract by 740,000 bpd, and continues to estimate demand for its crude oil for 2016 at 31.5 million bpd, 1.8 million bpd higher on the year.

Citing secondary sources, the report said oil production by OPEC in May declined 100,000 bpd to 32.36 million bpd.

The International Energy Agency will update its global oil supply and demand outlook for 2016 in its Oil Market Report for June scheduled for release Tuesday morning.

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


Brian Milne