Oil Futures Settle Down Monday

Oil Futures Settle Down Monday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower this afternoon, pressured by a strong dollar and fresh worries supply could be running ahead of demand.

"This [selloff] is an inverse reaction to the failed coup in Turkey," said analyst Phil Flynn at Price Futures Group. Others agreed.

"Petroleum prices are on the defensive to start the week on a combination of relief that a coup attempt in Turkey failed to disrupt oil pipeline flows or tanker loadings," said energy specialist Tim Evans at Citi Futures.

The Bosporus Strait, a 17-mile chokepoint in Istanbul that handles about 3.0 million barrels per day (bpd) of oil exports shipped from Russia and the Caspian Sea region to Western and Southern Europe, reopened on Saturday after closing for several hours during a military coup.

At settlement, NYMEX August West Texas Intermediate crude oil futures eased 71 cents to $45.24 per barrel (bbl) while September Brent on the IntercontinentalExchange fell 65 cents to $46.96 bbl. In products trade, NYMEX August ULSD futures eased 1.96 cents to $1.3778 gallon, off a nine-week spot low of $1.3618. August RBOB futures dropped 3.48 cents to a $1.38772 gallon settlement.

On Wall Street, the three main U.S. equity indices edged higher on risk-on trade this afternoon while the U.S. dollar strengthened, trading at a near one-week high versus six major currencies.

On the fundamentals, the Energy Information Administration and Bakers Hughes Inc. last week showed crude production in the United States increased in the week-ended July 8 and overall inventories are about 13% higher than a year ago. Crude production rose by 57,000 bpd to 8.485 million bpd, according to the EIA.

Also, Baker Hughes reported an increase in the number of active U.S. oil rigs by six to 357 for the week-ended July 15, the sixth increase in the past seven weeks that suggests rising domestic production.

The downside for oil futures was curbed by an EIA report issued today predicting the U.S. oil shale production may decline by 99,000 bpd in August from July.

Also, positive economic data from the United States and China boosted the prospect for demand. Data from China showed the economy grew at a slightly better-than-expected rate of 6.7% in the second quarter as Beijing stepped up government spending.

The New York Federal Reserve estimated U.S. growth would post moderate gains this year, with the economy in the third quarter likely to grow at a 2.6% annualized rate compared to a 1.1% expansion in the first quarter.

The Turkish coup attempt late Friday along with a terrorist attack in Nice, France, had raised geopolitical risks.

"The market rallied late Friday after news of the coup was reported, but it failed so there's no disruption to shipments through the Bosporus, and that means we are back to worrying about over supply and weakening demand, especially gasoline demand," said Flynn. "The market is also concerned about the wider geopolitical problems that could have a negative impact on demand."

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