Oil Futures End Lower

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange settled lower for the fourth consecutive session alongside another decline by major U.S. equity indices and a sharply stronger U.S. dollar on concern over global economic growth and ahead of a decision on U.S. interest rates Wednesday afternoon.

The lower close also comes in front of weekly supply data due out Tuesday afternoon and Wednesday morning, and follows supportive data on U.S. retail sales and a bullish short-term outlook for oil futures released this morning by the International Energy Agency.

Nearest delivered oil futures slipped to fresh lows overnight, but consolidated above support as it positions for the release of the weekly supply data.

NYMEX July West Texas Intermediate futures settled down 39cts at $48.49 bbl after trading at a $48.02 bbl two-week low, with ICE August Brent crude ending down 52cts at $49.83 bbl and near a $49.50 two-week low. NYMEX July ULSD futures settled down 1.25cts at $1.5020 gallon, paring a decline to a nearly two-week low at $1.4889 gallon. NYMEX July RBOB futures registered a fresh one-month low on the spot continuation chart of $1.5071 gallon before trimming the decline to a $1.5185 gallon settlement, down 1.77cts on the session.

The lower close comes as the U.S. dollar rallied to a near two-week high, retracing the majority of its sell-off following the June 3 Labor Department report that showed a deteriorating U.S. labor market in the second quarter that, up to the report, was a bright spot in the slow growth U.S. economy. Following the report, Federal Reserve Chair Janet Yellen said the central bank would need more data to determine if May's employment data was an anomaly or a change in trend, erasing expectations that the Fed would hike interest rates at their two-day meeting currently underway. Yellen is scheduled to comment on the meeting during a press conference Wednesday afternoon, including announcing a decision on the federal funds rate.

The dollar was also lent upside support after the Commerce Department showed U.S. retail sales came in stronger-than-expected in May at 0.5%, although below April's 1.3% increase.

A June 23 referendum in Britain on whether to leave the European Union has triggered selling in equities and commodities. An exit by Britain from the bloc is seen by some analysts to slow growth in Europe's economy in the short- and medium-term.

The IEA said in their monthly Oil Market Report today that oil stockpiling during the first six months of 2016 would average roughly 800,000 bpd, well below their early year expectation that inventory would grow at a 1.5 million bpd rate during the first half of the year. The adjustment in the outlook comes on far stronger demand than previously expected, unplanned supply disruptions in the second quarter, and declining oil production because of a low oil price.

IEA revised its global oil demand outlook for this year to 96.1 million bpd for year-on-year growth of 1.3 million bpd, up 200,000 bpd from a May forecast, with first quarter demand growth running 400,000 bpd higher at 1.6 million bpd than initially estimated. IEA projected global oil demand growth in 2017 at 1.3 million bpd, too.

In addition to the unplanned supply outages in the second quarter, peaking during May with wildfires in Canada and sabotage in Nigeria shutting down oil production, oil supply from producers that are not part of the Organization of the Petroleum Exporting Countries is also seen contracting by 900,000 bpd this year. U.S. shale oil producers account for 500,000 bpd of the decline.

Combined, these features are seen moving the global oil market into a supply-demand balance during the second half of this year, although high inventory is expected to cap price advances.

The market now awaits data on supply changes in the U.S. oil industry during the week ended June 10, with the market eyeing a fourth consecutive drawdown in commercial crude supply. Small declines were seen for oil products.

The American Petroleum Institute will release its weekly report at 4:30 p.m. EDT with Energy Information Administration scheduled to release its data set 10:30 a.m. EDT Wednesday.

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

(BAS)

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