Oil Shrinks to New Lows Wednesday

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 Brent crude on the IntercontinentalExchange were lower early Wednesday for the fifth consecutive session, trading near fresh lows after industry data released late Tuesday showed across the board supply builds in crude and oil products for last week.

The American Petroleum Institute reported a 1.2 million bbl increase in U.S. crude inventories for the week ended June 10 versus estimates for a 2.25 million bbl drawdown, a 2.3 million bbl build in gasoline inventory while expectations were for a decrease of 500,000 bbl, and a 3.7 million bbl build in distillates stocks when the market was looking for a 250,000 bbl decline.

The Energy Information Administration will release its weekly report at 10:30 AM ET.

At 9:00 AM ET, NYMEX July West Texas Intermediate was down 78cts at $47.71 bbl, near a $47.55 better than three-week low, with technical support found at $47.26 bbl. ICE August Brent was down $1.02 at $48.81 bbl, and has traded at a $48.67 better than two-week low, with support at $47.58 bbl.

NYMEX July ULSD futures were down 2.84cts at $1.4736 gallon, near a $1.433 gallon better than two-week low, with support marked at $1.4662 gallon. NYMEX July RBOB futures tumbled 4.32cts to $1.4781 at 9:00 AM ET, trading at a fresh one-month low on the spot continuation chart of $1.4777. RBOB futures have support at $1.4484 gallon.

The downside push in oil futures comes despite a weaker U.S. dollar and ahead of comments from Federal Reserve Chair Janet Yellen at 2:00 PM ET, when the central bank chief will provide an update on the economy and interest rates following the two-day Federal Open Market Committee meeting. No change is expected in the federal funds rate, with a possible rate hike envisioned a couple of weeks ago seen dismissed after a poor showing in U.S. job creation in May that questioned the strength of the U.S. economy. Yellen has said more data would be needed to know if May's employment report was the start of a new trend or an anomaly.

The string of declines by oil futures has also come amid concern over global economic growth, with more evidence of a slowdown in China's economy and ahead of a June 23 referendum in Britain on European Union membership. Analysts have said an exit from the EU by Britain would have negative short- and medium-term consequences for Europe's economy.

The decline comes despite a bullish short-term outlook for the global oil economy from the International Energy Agency on Tuesday, which sees the market in balance in the second half of 2016 on stronger-than-expected demand growth, unplanned supply disruptions in the second quarter, and lower output from producers that are not part of the Organization of the Petroleum Exporting Countries because of low oil prices. IEA expects a 900,000 bpd contraction in non-OPEC supply this year because of low prices, with U.S. shale oil producers accounting for 500,000 bpd of the decline. IEA also revised higher its outlook for global oil demand by 200,000 bpd for 2016, expecting annual growth of 1.3 million bpd this year and in 2017 driven by strong demand in the United States and India. Global oil demand ran 400,000 bpd ahead of the IEA's outlook in the first quarter with a 1.6 million bpd growth rate.

The IEA said the high level of inventory will cap the upside in global oil prices.

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


Brian Milne