Oil Futures Lower on Rising Output

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled lower across the board Monday afternoon amid concern about rising production in the United States, although losses were curbed by a weaker U.S. dollar and strong oil demand in China.

This is the first time in more than a week the entire oil futures complex has settled in negative territory after recovering earlier this month from their March slump.

"We do note that the uptrend in U.S. drilling and actual crude oil production have continued to slow the rate at which the global market rebalances," said New York-based Tim Evans, an energy specialist at Citi Futures.

Phil Flynn, an analyst at Price Futures in Chicago, agreed, adding, "The losses today were (also) because traders were taking geopolitical risk premium out of the market."

The May WTI futures contract settled down 53 cents at $52.65 per barrel (bbl), off a four-day low of $52.55. Options for May WTI futures expired this afternoon, with the May futures contract to expire at the close of trade on Thursday.

On the Intercontinental Exchange June Brent contract settled 53 cents lower at $55.36 bbl, off a $55.29 four-day low, with the trans-Atlantic arbitrage flat at a $2.71 bbl premium to WTI.

NYMEX May ULSD futures settled down 1.66 cents at $1.6329 gallon, off a three-day low of $1.6505. The NYMEX May RBOB futures contract was down 1.53 cents at a $1.7196 gallon settlement, moving off a five-day low of $1.7175.

Last week, Baker Hughes, Inc. reported the active U.S. rig-count rose by 11 to a two-year high of 683 during the week-ended April 13 and 332 higher than a year prior.

The U.S. Energy Information Administration last week reported U.S. oil production rose 36,000 barrels per day (bpd) during the week-ended April 7 to a 15-month high of 9.235 million bpd, with crude supplies at the Cushing delivery point for WTI futures rising by 300,000 bbl to a fresh record high of 69.4 million bbl.

The market is concerned the relentless increase in U.S. crude output would delay the pace of supply and demand rebalancing, offsetting production cuts by the Organization of the Petroleum Exporting Countries, or OPEC.

Saudi Aramco's chief executive Amin Nasser said Friday at an energy summit at Columbia University that the global market is close to rebalancing, as stocks continue to decline. OPEC and 11 non-OPEC producers reduced their oil production by a combined 1.8 million bpd during the first half of the year.

OPEC and non-OPEC have scheduled a May 25 meeting to consider extending the cuts beyond their June 30 expiration date. OPEC said last week that based on data gathered from secondary sources, its production fell 153,000 bpd in March to average 31.93 million bpd.

On the demand side, China reported during the weekend that its economy grew at a 6.9% annualized rate during the first quarter, and oil imports increased by 890,000 bpd or 10.7% to a 9.2 million bpd record high in March, while up 19.4% year-over-year.

Strong economic growth in China and the United States is expected to fuel oil demand during the summer months this year, although the International Energy Agency last week projected the growth in global oil demand would slow this year and non-OPEC supply would increase.

IEA estimated a global demand growth rate of 1.3 million bpd for 2017, down from an earlier estimate of 1.4 million bpd growth rate, for total demand of 97.9 million bpd.

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