Oil Moves Lower in Early Trade

NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures and Brent crude on the IntercontinentalExchange again moved lower at the open of regular trade Tuesday, with both West Texas Intermediate and Brent trading at fresh 3-1/2 month lows after Saudi Arabia reported higher production in February from January. Saudi Arabia reported a 263,300 bpd increase in its crude production in February to 10.011 million bpd according to the Organization of the Petroleum Exporting Countries' Monthly Oil Market Report released Tuesday morning. The Saudis self-reported figures differed from secondary sources however, which showed a 68,100 bpd decline in the kingdom's crude output to 9.797 million bpd in February.

OPEC also revised its forecast for oil supply from non-OPEC countries up 160,000 bpd to 57.74 million bpd this year amid expectations for greater production from Canada, the United States, and Russia, hiking its outlook for U.S. oil production in 2017 up 100,000 bpd for a year-on-year growth of 340,000 bpd or 2.5% to 13.95 million bpd.

"With drilling activity picking up and cash flow increasing in the tight oil industry, U.S. tight crude output is likely to increase by 180,000 bpd to average 4.44 million bpd in 2017," according to OPEC. "Production from tight oil wells, after initial high rates, is not declining as quickly as it did when the US shale boom began in 2007."

The MOMR added, "Russia's oil supply for 2017 has been revised up by 45,000 bpd following the adjustment of 181,000 bpd in 1Q17, and is seen to contract by 22,000 bpd to an average yearly supply of 11.08 million bpd."

OPEC, citing secondary sources, said their crude production in February decreased 140,000 bpd to 31.96 million bpd. At last glance, NYMEX April WTI futures were down 83cts at $47.57 bbl, near a $47.28 fresh 3-1/2 month low on the spot continuation chart. ICE May Brent crude futures were down 69cts to $50.66 bbl after trading near a 3-1/2 month spot low at $50.33.

Brent's premium over WTI widened to a two-month high at $3.09 bbl. In products trade, NYMEX April ULSD future slid 1.27cts to $1.4879 gallon after trading at a fresh 3-1/2 month spot low of $1.4795. NYMEX April RBOB futures dropped 1.02cts to $1.5705 gallon, off a $1.5623 fresh two-week spot low.

The market now awaits weekly U.S. oil inventory data due later Tuesday afternoon from the American Petroleum Institute, with the Energy Information Administration set to issue weekly data Wednesday morning. The market so far expects the weekly data to show crude stock builds and product stock draws occurred last week in the United States.

Also, the Federal Open Market Committee's two-day meeting begins Tuesday with an announcement scheduled for Wednesday on their decision on interest rates, with a boost in the federal funds rate seen likely. A hike in the key interest rate would likely strengthen the dollar against global currencies while adding downward pressure on U.S. oil prices since crude trades internationally in the dollar. The dollar was stronger this morning in index trading.

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