Oil Closes Lower

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange settled down for a second straight session, as building U.S. oil supply again shook confidence that a nearly three-year oversupplied global oil market would find balance in the near term, with West Texas Intermediate and ULSD futures trading at nearly four-month lows before paring the declines.

Bearish weekly data from the Energy Information Administration showing U.S. commercial crude oil stocks again increased to a record high, continued ramp up in domestic crude output, and lower demand for oil products accelerated an ongoing decline in oil futures, and pressed WTI and ULSD futures to fresh multi-month lows in the immediate reaction to the data released midmorning.

The bearish weekly statistics comes on the heels of news that Libya is again increasing crude oil production after the country's national militia retook control of two important export terminals last week. Bloomberg News has reported a 99,000 bpd recovery in Libyan crude oil output to 699,000 bpd.

A research note from Goldman Sachs on Tuesday continues to reverberate, with the investment bank projecting oil production from producers that are not part of the Organization of the Petroleum Exporting Countries adding 1.0 million bpd per year of new supply, keeping the market oversupplied during the next couple of years.

Goldman Sachs said new "mega" production projects coming online this year through 2019 following record capital expenditure from 2011 through 2013 will join the latest U.S. shale oil boom to add to global oil supply.

The investment bank wryly notes production cuts by OPEC that lifted crude prices had the unintended result of supporting U.S. shale oil producers, adding that OPEC was left with limited options in addressing the global supply overhang.

The EIA reported a 20,000 bpd increase in U.S. crude production to a fresh better than one-year high of 9.129 million bpd during the week-ended March 17, with domestic output up 183,000 bpd so far in 2017 and 432,000 bpd since late November when OPEC reached consensus to reduce crude production by 1.2 million bpd during the first half of 2017. On Dec. 10, Russia and 10 non-OPEC oil producers joined the cartel by pledging a 558,000 bpd production cut.

EIA reported a 5.0 million bbl build in commercial crude oil inventory to a 533.1 million bbl record high for last week that was well above market expectations, and marked the 10th week out of the past 11 in which domestic stockpiles increased. The inventory build was driven primarily by a 902,000 bpd surge in imports to an 8.307 million bpd five-week high, which more than offset a 329,000 bpd increase in crude oil inputs at U.S. refineries to 15.801 million bpd.

Data on oil products for last week was mostly bearish, save a larger-than-expected 2.8 million bbl draw from gasoline stocks, albeit below the 4.9 million bbl decline reported late Tuesday by the American Petroleum Institute. EIA said distillate stocks decreased by 1.9 million bbl, while implied distillate demand tumbled 397,000 bpd to 4.012 million bpd. Implied gasoline demand slid 54,000 bpd to 9.2 million bpd during the week reviewed.

At settlement, May WTI futures settled down 20cts at $48.04 bbl, erasing most of the decline to a $47.01 nearly four-month spot low. May Brent on the IntercontinentalExchange settled down 32cts at $50.84 bbl after breaking below $50.00 bbl with a $49.71 nearly four-month spot-month low.

NYMEX April ULSD futures traded at a $1.4758 gallon nearly four-month low on the spot continuous chart in morning trade before settling down 0.65cts at $1.4968 gallon. NYMEX April RBOB futures settled down 0.33cts at $1.6019 gallon.

The short-term or minor trends for WTI, Brent and ULSD futures are down, with the market in position to fully retrace the November-to-January rally triggered by OPEC's Nov. 30 agreement.

Brian Milne can be reached at brian.milne@dtn.com

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Brian Milne