Oil Mixed in Early Trade
NEW YORK (DTN) -- New York Mercantile Exchange oil futures posted multi-month lows Tuesday morning on too much supply, and moved mixed shortly after the start of regular trade following Monday's sell-off and ahead of options expiries for August oil products.
Market sentiment turned bearish in July after early year expectations that strong demand amid low oil prices and improving economic growth would overtake new supply and work down a global inventory glut that rebalanced the market in the second half of the year are not panning out. Analysts said the market rebalancing is likely delayed until next year, as global oil demand is not as strong as expected, while oil product inventory continues to build in the United States. Oil supply is also increasingly being stored offshore in tankers in what is known as floating storage.
At 9:00 AM ET, NYMEX September West Texas Intermediate crude oil futures were down 72cts to $42.41 bbl and near a $42.36 better than three-month low on the spot continuation chart. September Brent on the IntercontinentalExchange was down 55cts at $44.17 bbl, pennies away from a $44.14 fresh 2-1/2 month spot low.
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In products trade, NYMEX August ULSD futures slipped 1.0cts to $1.3128 gallon and near a fresh 2-1/2 month spot low of $1.3118. August RBOB futures retreated 1.99cts to $1.3137 gallon, off a fresh five-month spot low of $1.3093.
NYMEX oil products have since reversed higher.
Later today, the market will pour over the latest weekly data on U.S. oil fundamentals from the American Petroleum Institute, which is expected to show crude another crude stock draw for the week-ended July 22 while mixed on products stocks. The Energy Information Administration will issue its weekly supply report Wednesday morning.
Kyle Cooper, an analyst at IAF Advisors in Houston, forecasted a 4.0 million bbl crude oil stock draw and a 1.0 million bbl gasoline stock build while supply of distillates are seen holding steady for the week reviewed.
Although crude oil supply in the United States has been drawn down for nine weeks straight, the inventory of U.S. oil products continues to grow, with gasoline supply increasing during the first half of July despite strong seasonal driving demand.
BP CEO Bill Dudley said today that although oversupply of gasoline is weighing on oil prices and pressurizing refining margins, the crude oil market fundamentals would tighten going into 2017.
Dudley sees West Texas Intermediate crude oil prices averaging $50 to $60 bbl next year once the market tightens and gasoline glut is mopped up. Other analysts see WTI prices holding between $40 and $50 bbl for the next several months.
A weaker U.S. dollar today, which rallied to a 4-1/2 month high on Monday (7/25), has tempered the decline in WTI futures. The weaker dollar comes with today's start of the Federal Open Market Committee's two-day meeting. FOMC officials will discuss the health of the U.S. economy and whether to adjust the federal funds rate. The market widely expects no rate hike to be announced this week, setting their outlook for a hike in December.
George Orwel can be reached at george.orwel@dtn.com
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