Oil Futures Spiral Lower

Oil Futures Spiral Lower

NEW YORK (DTN) -- New York Mercantile Exchange oil futures fell to better than two-week lows at the start of regular trade this morning on speculative selling triggered by easing demand and building crude oil supply in the United States. Skepticism that the Organization of Petroleum Exporting Countries would agree to rein in output when they meet next month added to the downward pressure for the oil complex.

The Energy Information Administration reported on Wednesday that commercial crude oil stockpiles surged 2.3 million bbl during the week-ended Aug. 26 to 525.9 million bbl, 15.5% higher than a year earlier. Refinery crude inputs fell 64,000 bpd to 15.6 million bpd, and crude imports jumped 275,000 bpd. EIA also reported a 1.5 million bbl distillate supply build and a 691,000 bbl draw in gasoline stocks.

A Reuters survey showed OPEC production increased in August, with greater oil production by Arab Gulf countries making up for losses in Nigerian and Libyan output.

OPEC production increased to 33.5 million bpd in August from 33.46 million bpd in July, with Saudi Arabian output said to have risen as high as 10.90 million bpd last month from July's 10.67 million bpd, the survey shows.

Most analysts don't expect a workable agreement on a production freeze to emanate from informal OPEC talks set for Sept. 26-28 in Algeria. Saudi Energy Minister Khalid al-Falih last week said the Kingdom's oil supply was dictated by customer needs, and a Russian official downplayed the need for producer action.

At last look, NYMEX October West Texas Intermediate crude futures were down 43cts at $44.27 bbl, and slid below $40 to $43.90--the lowest price point for the nearby WTI since Aug. 12.

November Brent crude contract on the IntercontinentalExchange fell 49cts to $46.40, and moved to a nearly three-week spot low of $46.08. On Wednesday, the October Brent contract expired $1.33 lower at $47.04 bbl.

NYMEX October ULSD futures contract eased 1.94cts to $1.4063 gallon, and traded at a nearly three-week spot low of $1.3932 following Wednesday's expiration of the September contract.

NYMEX October RBOB futures was 1.76cts lower at $1.3158 gallon, gapping lower as it rolls into the nearest delivered position following the September contract's expiration Wednesday afternoon, and traded to a three-week low on the spot continuation chart of $1.3020.

Peak seasonal demand for gasoline in the Western hemisphere unofficially ends with the Labor Day weekend, analysts note.

The U.S. dollar also strengthened this morning, holding below Wednesday's three-week high on heightened expectation for the Federal Reserve to raise the federal funds rate this year, and potentially as soon as later this month when they meet Sept. 20-21 due to improved U.S. economic conditions including the labor market. The dollar and domestic oil have an inverse relationship.

This morning, the Department of Labor reported lower-than-expected weekly jobless claims, indicating slowing layoffs. The Labor Department will release its nonfarm employment report Friday morning which will factor into the Fed's decision on interest rates said analysts. The market expects the report to show 180,000 new jobs were added to the U.S. economy in August.