Oil Down in Early Trade

NEW YORK (DTN) -- New York Mercantile Exchange oil futures retreated at the start of regular trade Friday morning, giving back some of Thursday’s rally as traders reassessed domestic supply and demand fundamentals and moved to book profits ahead of the weekend break. At last look, NYMEX October West Texas Intermediate crude futures fell 93cts to $46.69 bbl while November Brent on the IntercontinentalExchange was down $1.01 at $48.98 bbl after inside trade. NYMEX October ULSD futures dropped 2.06cts to $1.4616 gallon while NYMEX October RBOB futures tumbled 3.49cts to $1.3816 gallon.

The Energy Information Administration on Thursday reported that U.S. crude stocks plummeted 14.5 million bbl and gasoline supplies tumbled 4.2 million bbl while distillate fuel stocks posted a 3.4 million bbl build last week. Analysts said the sharp crude stock draw was a surprise, and is unlikely to be repeated soon without another storm threat, attributing last week’s supply drop to weather. They said Hurricane Hermine disrupted oil production in the Gulf of Mexico and delayed loading of imported oil in the Gulf Coast last week, so the odds are high that crude supply builds would be reported next week, likely adding to an already oversupplied market. EIA said refinery crude inputs, a proxy for demand, jumped 315,000 bpd last week, as refinery runs rose 0.9% to 93.7% of operable capacity. But planned refinery maintenance during the shoulder months would reduce demand for crude oil, and gasoline demand is expected to ease in the coming weeks after a strong consumption rate throughout the summer's peak-driving season.

The market now awaits Baker Hughes Inc. oil rig count report for this week due out at 1:00 PM ET that serves as a guide for the direction of domestic oil production. The report for the week-ended Sept. 2 showed a rise in active U.S. oil rigs of one to 407, but down 255 on the year. EIA’s weekly report on Thursday showed domestic crude production fell 30,000 to 8.458 million bpd. Scott Bauer, a trader-analyst at Trader Advantage, said technical resistance was holding at $48 bbl for WTI contract. Bauer expects the WTI contract to stay within a $40-$46 bbl range in the short to medium term, and doubted plans by leading oil producers to freeze production.

The Organization of Petroleum Exporting Countries is considering some action to stabilize oil prices. Even if OPEC agrees to freeze output at an informal meeting set for Sept. 26-28 in Algeria, some of its members such as Saudi Arabia and Iraq are producing near record highs.

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