Oil Lower on US Supply Forecast

NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved lower at the start of regular trade Wednesday morning after the dollar rebounded from a five-week low and a report this morning by the Organization of the Petroleum Exporting Countries anticipates a rebound in shale oil output in the United States due to “the recovery in oil prices and the remarkable spending.”

The OPEC comments on U.S. oil shale output supported a report issued late 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. tight oil production improves in the coming months.

Still, non-OPEC oil supply is projected to grow this year by 120,000 bpd to average 57.26 million bpd. However, the U.S. forecast for 2017 was revised up by 230,000 bpd, following higher rig counts and stronger cash flows.

The OPEC report puts total U.S. production at 8.81 million bpd as of October 2016.

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 from January 2016. NYMEX oil futures fell within minutes of the report’s release and the selloff has only accelerated this morning.

At last glance, NYMEX February West Texas Intermediate futures tumbled $1.04 to $51.44 bbl while March Brent crude futures on the IntercontinentalExchange fell $1.05 to $54.42 bbl.

NYMEX February ULSD futures dropped 2.69cts to $1.6217 gallon while February RBOB futures fell 3.80cts to $1.5624 gallon.

Traders will be looking forward to the release of U.S. oil inventory reports due later this afternoon from the American Petroleum Institute and tomorrow morning from the EIA.

A preliminary 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 for the week-ended Jan. 13.

On demand, the OPEC report issued this morning says global oil demand is anticipated to rise by a solid 1.16 million bpd year-over-year to a 95.60 million bpd average, representing an upward revision of 10,000 bpd due to an expected uptick in oil requirements in OECD Europe in first quarter 2017.

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