Oil Futures Settle Down

NEW YORK (DTN) -- New York Mercantile Exchange oil futures took a leg down Thursday afternoon, settling lower across the board as worry over a glut of gasoline supply and continued increase in domestic crude production offset a weaker U.S. dollar and positive economic data.

"The market is still concerned about oversupply ... gasoline struggles because even though we are at the peak of gasoline season supply is still more than demand, and that's despite the fact that demand is already strong," said Tom Bentz, head of energy derivatives at ABN AMRO.

Others agreed.

"If gasoline inventories aren't falling now during the peak driving season, it probably will be worse during the shoulder months," said Michael Cohen, head of energy research at Barclays Capital.

On Wednesday, the Energy Information Administration reported a second consecutive weekly increase in gasoline stocks through July 15 to 241.0 million bbl, up 2.1 million bbl in July and the highest supply rate since the end of April. Gasoline inventory is 24.7 million bbl or 11.4% above year prior.

The supply build during the second week of July came despite a 115,000 bpd increase in gasoline supplied to market to 9.785 million bpd -- the second highest weekly implied demand rate since mid-June when it reached a record weekly high of 9.815 million bpd.

After sliding to a $1.3381 4-1/2 month low on the spot continuation chart, NYMEX August RBOB futures consolidated within Wednesday's trade range before settling down 0.87cts at $1.3550 gallon.

For distillates, NYMEX August ULSD futures tumbled 3.47cts to a $1.3707 gallon settlement, edging off a three-day low of $1.3687.

The NYMEX September West Texas Intermediate futures contract settled down $1.00 at $44.75 bbl after reversing off a three-day spot high of $46.09, with the September contract rolling into the nearest delivery position in the contango market for today's session.

The September Brent contract on the IntercontinentalExchange settled down 97cts at $46.20 bbl.

The futures downside was curbed by data showing a ninth consecutive weekly drawdown of domestic crude stocks, with EIA reporting a 2.3 million bbl decline in commercial supply during the week ended July 15 to 519.5 million bbl. U.S. crude supply has been drawn down 17.6 million bbl or 3.3% since mid-May, however inventory as of July 15 was 55.6 million bbl or 12.0% above the year-ago period.

The EIA also reported a modest 9,000 bpd boost in domestic crude production during the week ended July 15 to 8.494 million bpd although output is 66,000 bpd higher since July 1 when at it sunk to the lowest point since May 2014 at 8.428 million bpd. Recent increases in the Baker Hughes, Inc. rig count suggest a further increase in U.S. crude production.

Today, Genscape reported a crude stock build of 725,000 bbl at the Cushing supply hub in Oklahoma during the week ended July 19 according to analysts, with Cushing the delivery location for NYMEX WTI futures.

On Wall Street, U.S. stock indices were lower ahead of their close, while the dollar eased from Wednesday's nearly 4-1/2 month high. The dollar declined and the yen and euro rose after comments from the European Central Bank and the Bank of Japan.

Aside from keeping rates unchanged, the ECB said it will maintain its asset-purchase program of 80 billion euros a month through "March 2017 or beyond," given fact that "risks are tilted to the downside."

Euro-zone growth is forecast to continue at a slower pace throughout 2016, Draghi said, hampered by geopolitical uncertainty and slowing growth in the emerging markets. Draghi said there has been no impact so far to the region's recovery from the June 23 Brexit referendum and the July 15 failed military coup in Turkey.

Financial markets will now turn their attention to meetings next week by BoJ and the U.S. Federal Reserve. The markets are hoping for stimulus measures from Japan while expectations have heightened for the Fed to raise the federal funds rate in December since the domestic economy remains resilient.

U.S. data released today showed existing home sales rising to a nine-year high in June, with the index for leading indicators also higher. Recent data show a strong labor market while inflation is moving to the Fed's 2% target.

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