Oil Futures Tumble to Fresh Lows

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower this afternoon after posting near one-month lows and extending last week’s selloff as rising U.S. oil production frustrates efforts by the Organization of the Petroleum Exporting Countries to reduce global oversupply.

“The rig count continues to climb and even though OPEC will probably roll over their production cuts, they will need more demand to clear up the oversupply,” said Andy Lipow, president of Lipow Oil Associates in Houston.

Houston-based oil services firm Baker Hughes, Inc. on Friday reported U.S. oil drillers deployed five additional rigs in the domestic oil patch during the week-ended April 21 to a 688 two-year high. That’s the 14th consecutive weekly gain, and there are 26 more rigs activated so far this month and 163 deployed year-to-date.

U.S. production rose by 17,000 bpd to 9.252 million bpd during the week-ended April 14, the highest in some 20 months, and 299,000 bpd higher than a year ago, according to the Energy Information Administration. In addition, total U.S. crude inventories at 532.3 million bbl as of April 14 were 25.0 million bbl higher than a year ago and 126.8 million bbl above their five-year average.

OPEC and 11 non-OPEC oil producers are mulling a plan to extend the 1.8 million bpd in production cuts for six additional months after June 30 expiration of the current quota system, “but Russia has not given a firm commitment it will support the extension,” said senior analyst Phil Flynn at Price Futures Group.

Russia is one of the 11 non-OPEC producers that agreed last year to support the OPEC effort to stabilize the market by reducing output and drawing down global supply back to their five year average. However, Moscow has not fully complied with its pledge to cut 300,000 bpd as part the deal. OPEC meets May 25 to discuss compliance and whether to extend their current production agreement for the rest of the year.

Lipow noted that the oil futures complex also came under pressure from a softer products market, as refineries returning from maintenance ramped up runs to produce more gasoline while demand eased during the week-ended April 14. And with the spring season underway, the heating oil season is over, with the latest federal data showing demand for the fuel plunged 458,000 bpd to 4.177 million bpd, 2.3% below the same week a year ago.

The market also came under technical pressure, with June West Texas Intermediate crude contract not only trading below the psychological support at $50, but it also break another support at $49.59 today. The June IntercontinentalExchange Brent contract tested support at $51.35.

June WTI crude futures settled 39cts lower at $49.23 bbl, off a near one-month spot low of $49.03. June Brent crude settled 36cts lower at $51.60 bbl, off a near one-month spot low at $51.42. The trans-Atlantic arbitrage was little changed a $2.37 bbl premium over WTI.

NYMEX May ULSD futures settled 1.06cts lower at $1.5427 gallon, trading off a near one-month low of $1.5380 after punching through support at $1.5485. NYMEX May RBOB futures lost 2.31cts to $1.6214 gallon, off a $1.6197 near one-month spot low.

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