Oil Futures Settle Lower
NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower this afternoon after coming under selling pressure by technical factors, a stronger dollar and concerns that rising U.S. oil shale production could undermine efforts to reduce global oil supply glut by the Organization of Petroleum Exporting Countries and non-OPEC oil producers.
The dollar index rebounded from a five-week low overnight and a report issued today by OPEC anticipates a rebound in shale oil output in the U.S. due to the recovery in oil prices.
The OPEC comments on U.S. oil shale output echoed comments by Fatih Birol, chief economist at the International Energy Agency, on a report issued Tuesday by the Energy Information Administration which projected a hike in domestic oil shale production.
In its January Oil Market Report, OPEC said the forecast for 2017 non-OPEC supply depends on how much U.S. oil production is able to increase in the coming months.
Non-OPEC oil supply is projected to grow this year by 120,000 bpd to average 57.26 million bpd, OPEC said while revising up its U.S. forecast for 2017 by 230,000 bpd due to higher rig counts and stronger cash flows. The OPEC report puts total U.S. production at 8.81 million bpd as of October 2016.
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Late Tuesday, EIA projected in its monthly Drilling Productivity Report that production from seven major U.S. oil shale plays would increase 41,000 bpd, to 4.748 million bpd, in February 2017.
NYMEX oil futures fell within minutes of the report's release and the selloff has only accelerated today after OPEC and IEA's Birol made similar comments.
"The concern about increasing U.S. oil shale production has changed the mood in the market to negative even though OPEC compliance with recently agreed production cuts is good," analyst Phil Flynn at Price Futures. "[WTI] prices were up 24 hours ago and now they are at the low end of the trading range, so it's getting to be a technical trade as well. But we are now just waiting for the weekly oil reports."
The American Petroleum Institute will release its oil supply report for the week-ended Jan. 13 at 4:30 p.m. ET Wednesday while EIA will release its weekly report at 11 a.m. ET Thursday.
A survey shows the market expects the reports to show a 2 million bbl stock draw for crude and stock builds of 1 million bbl each for gasoline and distillate supplies.
At settlement, NYMEX February West Texas Intermediate futures were down $1.40 at $51.08 bbl, off a one-week low of $50.91, and March Brent crude futures on the IntercontinentalExchange fell $1.55 to $53.92 bbl.
NYMEX February ULSD futures settled 3.94 cents lower at $1.6092 gallon, near a $1.6044 six-week low on the spot continuation chart. February RBOB futures plunged 5.17 cents to a $1.5487 per gallon settlement, approaching a $1.5400 four-week spot low.
The OPEC report issued earlier today revised higher its oil demand forecast by 10,000 bpd, saying it now anticipates global demand to rise by a solid 1.16 million bpd year-over-year to a 95.60 million bpd average.
Demand is supported by strong economic growth and U.S. data released today and comments from the Federal Reserve suggested the U.S. economy is strong, with Fed Chair Janet Yellen saying the economy would continue to grow in the medium to longer term.
In a speech today in San Francisco, Yellen said the economy is close to meeting the central bank's dual goals of full employment and a 2% inflation rate. The Fed's Beige Book released this afternoon also showed manufacturing sector is picking up, business investment is improving and the labor market is getting tight.
George Orwel can be reached at george.orwel@dtn.com
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