Oil Futures Settle Down Monday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower this afternoon under selling pressure from a strengthening dollar and doubt the Organization of Petroleum Exporting Countries would agree to rein in supply next month.

"The market was boring... there was no momentum and so we traded within a tight range as we wait to see what the Federal Reserve and OPEC would do," said senior analyst Phil Flynn at Price Futures Group in Chicago.

"Informal producer talks on the sidelines of the International Energy Forum in Algeria on Sept. 26-28 will likely remain the focus," said Citi Futures energy specialist Tim Evans.

Analysts have been mixed over the past week on what OPEC is likely to do when they meet in Algiers for informal talks late next month. Comments by key OPEC members last week appeared to temper expectations that the cartel would reach an agreement to cut or freeze their production, with growing oil output by Iraq, Iran, and Saudi Arabia further dimming the likelihood for an agreement.

"I think OPEC will reach a deal to freeze this time," said Flynn.

Others disagreed.

"Our base case scenario assumes no effective agreement to limit output, with a high ongoing level of OPEC production contributing to an ongoing supply/demand surplus, with a related risk of renewed price weakness," said Evans.

On Saturday, Aug. 27, Iraqi oil minister Jabar Ali al-Luaibi said his country is willing to support oil prices while preserving its market share, but he also indicated Iraq would continue to ramp up output.

Saudi Arabia has also reportedly maintained output at near record levels this month while Saudi energy minister Khalid al-Falih last week said he didn't believe any major intervention in the oil market is necessary. He said there hasn't yet been any specific discussion by OPEC of an output freeze despite the current global supply glut.

Iranian Oil Minister Bijan Namdar Zanganeh said Tehran would attend the OPEC meeting and cooperate in the efforts to stabilize the oil market but other OPEC members must recognize its right to regain lost market share. Zanganeh said Iran wants its output to rise to 4.0 million barrels per day (bpd), up from 3.6 million bpd reported in July.

Traders were also squaring positions ahead of the expiration on Wednesday, Aug. 31, of the October Brent contract on the IntercontinentalExchange and NYMEX September oil products futures contracts.

At settlement, NYMEX October West Texas Intermediate crude futures were down 66 cents at $46.98 per barrel (bbl), off a two-day low at $46.62. ICE October Brent contract was 66 cents lower at $49.26 bbl while the November Brent contract was down 70 cents at $49.45.

NYMEX September ULSD futures settled 1.10 cents lower at $1.4862 gallon, off a one-week low of $1.4725, with the October contract down 1.04 cents at $1.5007.

September RBOB futures tumbled 4.59 cents to a $1.4669 gallon settlement, off a one-week low of $1.4636, with the October contract down 3.26 cents at $1.3958.

The domestic crude oil market also remains well supplied while gasoline demand is set to ease as the summer peak driving season ends with Labor Day.

The U.S. Energy Information Administration last week said crude stocks rose in the week-ended Aug. 19, with crude up 2.5 million bbl to 523.6 million bbl, 16.1% higher year-over-year.

Market speculators now await the U.S. nonfarm payroll report from the Department of Labor due out on Friday, Sept. 2, that could accelerate the move towards a higher federal funds rate, which would boost the dollar. The consensus call is for 180,000 jobs to have been added to the U.S. economy in August.

Federal Reserve officials last week suggested a hike of federal funds rate could come before the end of the year. The dollar, which has an inverse relationship with domestic crude oil prices, rallied to a two-week high today.

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