Oil Weak in Early Tuesday Trade

NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures weakened again at the start of regular trade Tuesday morning, pressured by a rallying U.S. dollar and concern rising domestic production would undermine output cuts by the Organization of the Petroleum Exporting Countries and their non-OPEC partners. Adding to the downside is an easing geopolitical risk premium.

The market rallied late last week on an escalation in tensions between the United States and Iran over a missile launch by Iran that triggered the U.S. to counter with sanctions. Tehran said the missile launch was not conducted to test President Donald Trump, easing worry that the events could lead to an escalation of tension, prompting speculative bets for higher prices to be unwound.

NYMEX oil futures moved lower ahead of weekly supply reports that are expected to show continued building supply. For the week-ended Feb. 3, a Schneider Electric survey this morning shows expectations for stock builds of 2.7 million bbl for crude, 1.2 million bbl for gasoline and 1.3 million bbl for distillate fuels.

Last week, EIA reported U.S. commercial crude oil supply rose 6.5 million bbl to 494.8 million bbl in the week-ended Jan. 27, 5.0% above the corresponding week year prior.

The inventory build came alongside strong domestic crude production, which EIA reported averaged 8.942 million bpd during the four weeks ended Jan. 27. Seventeen more rigs were deployed in the U.S. oil patch last week according to oil services provider Baker Hughes, Inc.

The American Petroleum Institute will release its oil supply report at 4:30 PM ET and the Energy Information Administration 10:30 AM ET Wednesday.

In early trade, NYMEX March West Texas Intermediate futures fell 83cts to $52.18 bbl, off a $52.03 two-week low, and ICE April Brent crude oil futures slid 80cts to $54.92 bbl, near two-week low of $54.72. NYMEX March ULSD futures dropped 2.06cts to $1.6146 gallon, off a $1.6080 one-week spot low, and March RBOB futures declined 2.54cts to $1.4847 gallon, near a two-month spot low of $1.4800.

In currency trade, the dollar rose to a one-week high against other major currencies on hawkish comments by a Federal Reserve official who said there was a chance of an interest rate hike in March. Philadelphia Fed President Patrick Harker said 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