Oil Futures Plunge in Early Trade

Oil Futures Plunge in Early Trade

NEW YORK (DTN) -- New York Mercantile Exchange oil futures plunged at the start of regular trade this morning, as selling pressure accelerated on a triple-punch of oil oversupply, weak U.S. growth data and a disappointing stimulus program announced overnight by the Bank of Japan.

As a consequence, the spot-month contracts for West Texas Intermediate, RBOB and ULSD futures all slid into bear-market territory, with growing concerns demand will likely be curtailed if the economy truly slows. Already, gasoline demand is strong in the United States, but that hasn't dented elevated inventories this summer.

A backlog of crude supply is expected after the summer peak driving season when refineries will reduce runs and embark on maintenance, which would further depress oil prices, said analysts. This comes as ExxonMobil's earnings missed expectations.

At last look, NYMEX August RBOB futures were down 0.82cts at $1.2980 gallon, off a $1.2760 new five-month low on the spot continuation chart ahead of its expiration this afternoon. The backwardation in the first two delivery months widened to a still narrow 0.46cts gallon, with the September RBOB contract down 0.77cts to $1.2934.

NYMEX August ULSD futures were 0.30cts lower at $1.2674 gallon after trading at a fresh better than three-month spot low of $1.2575 ahead of the expiry of the contract. The contango at the front-end of the forward curve widened sharply this week, with the September ULSD contract down 0.51cts at $1.2934 gallon, 2.67cts higher than the August contract.

In crude oil trade, NYMEX September WTI futures were 12cts lower at $41.02 bbl, having traded at a fresh better than three-month low on the spot continuation chart of $40.57.

ICE September Brent was 40cts lower at $42.30 bbl, off a better than three-month spot low of $41.82 ahead of its expiration. October Brent was down 27cts at $42.96 bbl.

On Wall Street, U.S. equities were mixed after initial reading of second quarter growth rate showed the U.S. economy grew at a 1.2% annualized rate after a downwardly revised 0.8% growth rate for the first quarter. Market consensus had called for a 2.6% gross domestic product for the second quarter, so this was a big miss on expectation, analysts said.

In Japan, the market had eagerly expected a robust asset purchase program in what is known as "helicopter money and a cut in interest rates after a sweeping parliamentary win earlier this month by Prime Minister Shinzo Abe. Instead, the BoJ announced a small increase in asset purchase program of $58 billion a year with interest rates left unchanged. The yen moved up in response, pushing the U.S. dollar down to a three-week low, with a weaker dollar curbing the downside for oil prices.

In Europe, new data showed that the economic growth of the 19-member bloc slowed in the second quarter and the impact of the June 23 vote by Britain to leave the European Union is expected to further undermine growth. The gross domestic product grew at a 0.3% annualized rate, the data showed, down from 0.6% for the first quarter. Inflation rose 0.2% in July.

Oil futures are in bear-market territory, which is defined as a 20% drop from peak price, to a larger extent on concerns over accumulation of crude oil and gasoline supply. After being drawn down for nine weeks straight, total domestic commercial crude oil supply surged 1.7 million bbl during the week-ended July 22 to 521.1 million bbl, 13.4% above a year ago level, Energy Information Administration data showed.

The market now awaits U.S. rig count report due later today from Baker Hughes Inc.