Oil Futures End Down on Profit-Taking

NEW YORK (DTN) -- New York Mercantile Exchange oil futures contracts settled lower Tuesday afternoon, with West Texas Intermediate crude pulling back after a four-day rally fueled by the Nov. 30 agreement by Organization of the Petroleum Exporting Countries to cut their output starting New Year's day.

"This is the first official down day after the deal, so you can call it a correction, and the reason for the pullback is we got a report showing Russian production rising, and we got confirmation that OPEC raised its output just before they met last week, and people now are worried about the meeting scheduled for this weekend between OPEC and non-OPEC," said Phil Flynn, a senior analyst with Price Futures Group in Chicago.

Others agreed.

"The feedback we are getting is that OPEC is still producing at record highs, so what they are saying and doing are two separate things," said Doug Quigley, an analyst at AMN AMRO. "They can agree to cut production but who's going to give up their market-share and institute the cuts. It's no surprise to me that we are having a correction today."

OPEC agreed last week to limit its output to 32.5 million barrels per day (bpd) effective Jan. 1, a 1.2 million bpd reduction in its total production. Non-OPEC producers were expected to cut 600,000 bpd, with Russia pledging to cut 300,000 bpd.

In its Short-term Energy Outlook for December issued this afternoon, the U.S. Energy Information Administration projected OPEC production would average 33.2 million bpd in 2017, up from 32.53 million bpd for this year and 31.75 million bpd for 2015.

The EIA projection for 2017 is 700,000 bpd higher than the limit OPEC set for itself last week, and that's before the recovery of Nigerian and Libyan production are accounted for. Those two African countries are still battling militants who have kept their production below their normal capacities.

Wire reports said today that Russian production in November averaged 11.21 million bpd, its highest output rate in nearly 30 years. Moreover, other reports said Saudi Arabia and Kuwait may resume oil production from jointly-held fields in a mutual neutral zone.

EIA projected global oil demand would increase by 1.566 million bpd year-over-year to 96.992 million bpd in 2017. The report estimated demand this year at 95.426 million bpd, 1.356 bpd higher than for 2015 at 94.070 million bpd. The report estimated total world oil supply rising to 97.42 million bpd in 2017 from 96.14 million bpd this year and 95.78 million bpd in 2015.

At settlement, NYMEX January WTI crude futures declined 86 cents to $50.93 per barrel (bbl), reversing off Monday's 16-1/2 month high of $52.42. February Brent crude futures on the ICE complex fell $1.01 to $53.93 bbl, reversing off Monday's 16-1/2 month spot high of $55.33.

NYMEX January ULSD futures tumbled 1.92 cents to $1.6379 gallon, reversing off Monday's 15-month spot high of $1.6774. January RBOB futures dipped 2.16 cents to $1.5359 gallon, reversing off Monday's better than four-week spot high of $1.5789.

A stronger dollar added downward pressure upon the oil futures complex.

The market now awaits oil inventory data for the week-ended Dec. 2 from the American Petroleum Institute due at 4:30 PM ET, with EIA releasing its weekly report Wednesday morning. A survey shows expectations for a crude stock build of 1.8 million bbl, with increases estimated for gasoline and distillate supplies of 1.7 million and 1.3 million bpd, respectively.

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