Oil Futures Settle Lower on Bearish EIA

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower this afternoon on a bearish weekly report from the Energy Information Administration detailing unexpected supply builds for crude oil and gasoline in the United States.

It was the third straight weekly increase in gasoline stocks despite strong seasonal demand, with the ongoing build-up coming at a time when stock levels should be drawing down. This has been a key feature driving the sell-off in oil futures in July, prompting long liquidation.

"The crude numbers were quite bearish as were gasoline and distillate data, and it appears the outright oil prices should drift lower in the near term," said Thomas Finlon, director at Energy Analytics Group in Wellington, Florida. "After the Fed statement, all the bearish risks have now been priced, and what stuck out for me in the EIA data is the big drop in refinery runs, which is probably why crude inventories climbed as crude demand fell."

This afternoon, the Federal Open Market Committee announced it would leave the federal funds rate unchanged after a two-day policy meeting, although the central bank signaled openness to a rate hike in September, saying risks to the U.S. economy have diminished.

At settlement, NYMEX August RBOB futures had declined 2.38cts or 1.8% to $1.3214 gallon, paring a drop to a $1.3035 fresh five-month low on the spot continuation chart. The September contract traded at a 42 points discount to August futures ahead of the August contract's expiration Friday afternoon.

NYMEX August ULSD futures dropped back 3.10cts or 2.3% to a $1.2950 gallon settlement, near a 2-1/2 month spot low of $1.2915, with September delivery settling at a 2.79cts premium to the August ULSD contract that expires on Friday afternoon. That's the widest premium held by second month delivery over nearest delivery this year.

In crude oil trade, NYMEX September West Texas Intermediate crude oil futures settled $1.00 lower at $41.92 bbl, having traded at a better than three-month low on the spot continuation chart of $41.68.

September Brent on IntercontinentalExchange was $1.40 lower at $43.47 bbl at settlement, off a fresh 2-1/2 month spot low of $43.28. October Brent settled down $1.32 at $43.91 bbl ahead of the September contract's expiration Friday afternoon.

The EIA reported domestic commercial crude oil inventories increased 1.7 million bbl instead of an expected 3.0 million bbl build during the week-ended July 22. At 521.1 million bbl, U.S. crude stocks are up 13.4% versus the comparable week a year ago.

This is the first weekly crude stock increase in 10 weeks, since mid-May. The stock build was accompanied by a surge in imports, which rose 303,000 bpd to 8.437 million bpd for the week reviewed, while domestic crude production ramped up 21,000 bpd to 8.515 million bpd.

At Cushing, Oklahoma, delivery point for NYMEX WTI futures, crude stocks rose 1.1 million bbl to 65.2 million bbl. The market expected a 500,000 bbl crude stock draw at Cushing.

For products, EIA reported gasoline stocks rose 452,000 bbl to 241.5 million bbl for the week reviewed, while the market expected a draw of 800,000 bbl. Total gasoline stocks are up 11.8% year-over-year, EIA showed.

Distillate fuel supplies decreased 780,000 bbl to 152.0 million bbl for the week, EIA said, while the market expected stocks for the fuel to hold steady. Distillate stocks are up 5.5% year-over-year, EIA showed.

Implied demand data was mixed for the week reviewed, down 63,000 bpd for distillates while up 11,000 bpd for gasoline. Refinery crude inputs, a proxy for demand, fell 277,000 bpd or 1.6% for the week reviewed.

George Orwel, 1.718.522.3969, george.orwel@dtn.com, www.schneider-electric.com. (c) 2016 Schneider Electric. All rights reserved.