Oil Futures Tumble on Growing Supply

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled lower Tuesday afternoon with the April West Texas Intermediate crude contract expiring at the lowest level on the spot continuous chart since Nov. 29, 2016, on concern over growing U.S. supply that caused traders to discount production cuts by the Organization of the Petroleum Exporting Countries while a weaker U.S. dollar was ignored.

The Energy Information Administration shows U.S. crude production at a better than one-year high at 9.109 million barrels per day (bpd) during the week-ended March 10, with commercial crude inventory at 528.2 million barrels (bbl), stocks are 7.3% higher than a year earlier.

The selloff came in front of weekly oil supply data from the American Petroleum Institute that's expected to show a crude stock build of 1.7 million bbl and stock draws of 1.75 million bbl each for gasoline and middle distillate fuels.

API's data is due out at 4:30 p.m. EDT while the EIA's weekly oil report is scheduled for release at 10:30 a.m. EDT Wednesday.

"The petroleum markets are largely in consolidation mode, with book squaring ahead of today's April WTI contract expiration and the US weekly inventory reports as the primary short-term concerns," said energy specialist Tim Evans at Citi Futures. "Reports of OPEC interest in extending production limits beyond their current June horizon are having only a limited impact as ongoing non-OPEC cooperation remains uncertain."

The selloff pressed the spot-month WTI contract settlement value to its lowest point since a day before OPEC agreed to cut their production by 1.2 million bpd effective Jan. 1 through June 30, followed by a deal by 11 non-OPEC producers to cut their output by 558,000 bpd on Dec. 10.

The fact that OPEC has had a strong compliance rate with the cuts has been the major support since the start of 2017, but consistent stock builds and production increases in the United States have undermined OPEC's efforts to reduce global supply, said analysts.

Aside from fundamentals, the oil futures complex also was pressured by falling equities.

"That talk of OPEC and U.S. supply data were there but at the end of the day what really happened is the stock market fell and oil came down with it after [Speaker] Paul Ryan started talking," said analyst Phil Flynn at Price Futures.

Flynn said equities fell because of concern Congress may delay President Trump's policy priorities that had been the driver of investor optimism since the November general elections. The Dow Jones Industrial Average fell by about 230 points.

The NYMEX April ULSD futures contract settled 1.08 cents lower at $1.5033 gallon, reversing off an 11-day high of $1.5360. The NYMEX April RBOB futures contract settled down 0.61 cent at $1.6052 gallon, reversing off an 11-day high of $1.6350.

May NYMEX West Texas Intermediate crude futures settled down 67 cents at $48.24 bbl while the April contract that expired down 88 cents at $47.34 bbl, off a one-week low of $47.23.

May Brent crude futures on the IntercontinentalExchange fell 66 cents to settle at $50.96 bbl, off a one-week low of $50.73. In arbitrage trade, the Brent premium over WTI was up 22 cents at a $3.62 bbl better-than one-year high.

The U.S. dollar dropped sharply, declining in index trade to the lowest level since early February.

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