Oil Settles Lower Thursday

NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures settled lower again on Thursday afternoon, but trimmed losses after tumbling to fresh one-month lows for West Texas Intermediate crude and ULSD contracts, with the RBOB contract cascading to a two-month low on a combination of technical pressure and oil production increases in the United States and Libya.

"The market was trending down already but what really amplified the selloff and caused a sharp drop today was news that Libyan oil is coming back to the market," said Phil Flynn, an analyst at Price Futures Group. "On top of that, fear that demand for gasoline is not strong has put downward pressure on oil prices."

Wire reports showed that Libya's 200,000 bpd Sharara oilfield resumed production after a nearly two-week outage and a force majeure that was lifted by the country's state-owned oil company. The crude is now being shipped by pipeline to the Zawiya terminal for exports.

U.S. data issued Wednesday showing rising domestic crude oil production underpinned the bearish market sentiment, with oil traders doubting recent bullish comments by the Organization of the Petroleum Exporting Countries.

Analysts said the market has already priced in the fact that OPEC wants global oil inventories to decline to within their five-year average, but is not sure the cartel is in the driver's seat.

OPEC is working to ensure its meeting on May 25 concludes with a deal or a consensus pointing to an extension of the current oil production cut of nearly 1.8 million bpd set to end on June 30. A majority of the 13 member OPEC have given a nod to the plan to extend output cuts until December, while five African OPEC members plus Ecuador have not yet indicated their plans but expected to back consensus opinion.

OPEC Secretary-General Mohammad Barkindo said the global market would rebalance during the second half of 2017, suggesting that extending the production cuts beyond June is a foregone conclusion within OPEC.

Domestically, the Energy Information Administration's data on Wednesday showed U.S. crude production increasing for the 10th straight week to a 9.265 million bpd 20-month high and 15% above its five-year average in the week-ended April 21, and crude inventories at 528.7 million bbl were 120.6 million above their five-year average.

A sign of whether oil production rose again this week is expected to be indicated on Friday by the weekly rig-count report from oil services firm Baker Hughes, Inc.

On demand, the EIA report showed total U.S. products supplied over the last four-week period averaged more than 19.5 million bpd, down 2.2% from the same period last year amid building product supplies. Over the last four weeks, gasoline demand averaged about 9.2 million bpd, down 1.8% on the year. Distillate demand averaged about 4.1 million bpd over the last four weeks, up 4.5% versus a year ago.

Technically, downside risk remains, and the longer it takes to rebalance supply and demand the more likely another liquidation of length would be triggered, analyst Brian LaRose at ICAP in Jersey City, N.J.

At settlement, NYMEX May RBOB futures tumbled 4.03cts to $1.55 gallon, off a $1.5390 two-month spot low ahead of expiration Friday, with the June contract down 4.01cts to $1.5543. Technical support for the May RBOB contract held at $1.53.

NYMEX May ULSD futures dropped 2.95cts to $1.5072 gallon at settlement, off a $1.4909 fresh one-month spot low ahead of its Friday expiration, with the June contract down 3.01cts at $1.5116.

NYMEX June WTI crude futures settled 65cts lower at $48.97 bbl, paring losses after posting a one-month low on the spot continuation chart of $48.20, testing support at $48.

The IntercontinentalExchange June Brent crude contract declined 38cts to a $51.44 bbl settlement, off a $50.45 fresh one-month spot low and ahead of its expiration on Friday, with the July Brent contract down 59cts at $51.82 bbl.

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