Oil Settles Lower Tuesday

NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures settled lower Tuesday afternoon under pressure from a strengthening dollar and expectations U.S. crude and oil products supply again increased last week amid rising domestic crude production and weak gasoline demand.

"We've had a consistent build up in gasoline inventory that is weighing on the market, plus the fact that U.S. crude production is...high, offsetting any production OPEC is cutting," said Tom Bentz, vice president for energy derivatives at ABN AMRO in New York.

At settlement, NYMEX March West Texas Intermediate futures fell 84cts to $52.17 bbl, edging off a $51.82 two-week low, and ICE April Brent crude oil futures slid 67cts to settle at $55.05 bbl, paring a decline to two-week spot low of $54.72. NYMEX March ULSD futures fell 1.31cts to settle at $1.6221 gallon, trimming a decline to a $1.6080 one-week spot low, and March RBOB futures fell 2.28cts to $1.4875 gallon, paring a loss to a nearly two-month spot low of $1.4742.

A survey of analysts shows the market expects inventory reports due this week to show U.S. petroleum stockpiles increased across the board during the week-ended Feb. 3, including a 2.7 million bbl build in commercial crude supply. During the prior week, the Energy Information Administration reported U.S. crude supply increased 6.5 million bbl to 494.8 million bbl, 23.4 million bbl or 5.0% above the same week in 2016.

Expectations also call for a 1.3 million bbl increase in distillate supply and 1.2 million bbl build in gasoline inventory to have taken place last week. As of Jan. 27, EIA shows U.S. gasoline supply at 257.086 million bbl, the second highest amount of inventory on record, with records going back to 1980.

The American Petroleum Institute is set to release its weekly report at 4:30 PM ET and the EIA at 10:30 AM ET Wednesday.

Some analysts also expect EIA to show an increase in domestic crude production, with Baker Hughes, Inc. reporting today in a news release that the U.S. rig count in January gained 49 from December to average 683.

In its Short-term Energy Outlook released this afternoon, EIA estimates U.S. crude production would average 9.0 million bpd this year and 9.5 million bpd in 2018, up from an estimated 8.9 million bpd in 2016.

In currency trade, the dollar index rose to a one-week high following comments from Philadelphia Federal Reserve President Patrick Harker who said that he could support raising the federal funds rate at the central bank's March meeting, adding there's a chance the Fed would increase the rate three times this year.

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