Oil Futures Topple on Easing Demand

NEW YORK (DTN) -- New York Mercantile Exchange oil futures plunged Wednesday afternoon after bearish U.S. weekly oil supply reports triggered aggressive selling by noncommercial market players in response to clear signs of declining demand.

The Energy Information Administration's oil report for the week-ended July 8 affirmed the American Petroleum Institute's data issued late Tuesday showing unexpected stock builds for refined oil products.

The EIA report extended to an eight consecutive week the ongoing decline in domestic crude oil stocks, but the draw was less than expected with production surging during the week profiled. API reported a surprise increase in crude supply.

The oil reports overshadowed the Federal Reserve's Beige Book issued this afternoon showing the economy continued to expand at modest pace in most of the country.

"This was a bad [oil] report showing the inventory trend has shifted from bullish to bearish as the surplus is increasing," said Kyle Cooper, an analyst at IAF Advisors in Houston.

At settlement, NYMEX August West Texas Intermediate crude oil futures dropped $2.05, or 4.4%, to $44.75 per barrel (bbl). September Brent on IntercontinentalExchange fell $2.21, or 4.6%, to $46.26 bbl.

In products trade, NYMEX August ULSD futures tumbled 8.23 cents, or 5.6%, to $1.3809 gallon at settlement, and August RBOB futures settled 5.17 cents, or 3.6% lower, at $1.3784 gallon.

The EIA's data showed crude oil stocks fell 2.5 million bbl for the week while crude production increased by 57,000 bpd to 8.485 million bpd.

EIA reported a 1.2 million bbl gasoline stock build for the week, while the market expected a draw of 300,000 bbl, and total distillate fuel supplies increased by 4.1 million bbl versus consensus expectations for a 300,000 bbl week-over-week stock drawdown.

Gasoline demand fell by 84,000 barrels per day (bpd) to 9.67 million bpd while implied distillate demand plunged 727,000 bpd to 3.2 million bpd, according to federal data.

On the economic front, investor confidence on the U.S. economy has improved following last Friday's July payroll report that showed a strengthening labor market.

This afternoon, the Beige Book said the economy continued to expand from mid-May to end of June, but inflation remained subdued.

George Orwel can be reached at george.orwel@dtn.com