Oil Settles Lower Tuesday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures ended lower Tuesday afternoon amid a stronger U.S. dollar and growing concerns over the persistent bearish global supply and demand fundamentals, and ahead of an industry report on U.S. petroleum supplies during the first week of May.

In its Short-term Energy Outlook, the Energy Information Administration raised its estimated global demand for 2017 and 2018 while boosting crude oil supply by countries that are not members of the Organization of the Petroleum Exporting Countries.

In the report, EIA said world oil consumption averaged 96.735 million bpd in 2016 and is now estimated to grow at a 1.57 million bpd annual rate to 98.301 million bpd this year. The numbers reflects upside revisions by 144,000 bpd for 2017.

Non-OPEC oil production estimates were also raised up 240,000 bpd to 59.04 million bpd this year. U.S. crude production is estimated to have reached 9.1 million bpd in April, the highest level since March 2016, with the number of U.S. oil drilling rigs reaching a two-year high at the beginning of May, said STEO.

The report also walked back its projection a month ago that the market would rebalance this year, saying now that "the global crude oil market in 2017 and 2018 will have more supply growth compared with the April STEO, resulting in a lower forecast of crude oil prices in the coming months."

OPEC and their 11 non-OPEC allies have are considering extending their ongoing production cuts of nearly 1.8 million bpd into 2018 to expedite the rebalancing of the global market. However, the market remains skeptical about OPEC's chances of success given rising U.S. production and plans by both Libya and Nigeria to boost their supplies over the coming months.

Wire reports said Libya plans to boost its oil output to 1.1 million bpd by August from current production of 780,000 bpd, while Nigeria could boost its crude production to 900,000 bpd from current output of 600,000 bpd.

Analysts also said for every barrel OPEC and their allies have taken out of the market in the past four months 0.8 points of barrel have been added by U.S. oil shale producers over the past two months.

At 4:30 PM ET, the American Petroleum Institute will release its oil report for the week-ended May 5, followed by EIA's Weekly Petroleum Status Report at 10:30 AM ET Wednesday.

A survey shows the market expects U.S. stock draws of 2.1 million bbl in domestic crude oil supplies, 1.1 million bbl in gasoline stocks and 800,000 bbl in distillate inventories.

The NYMEX June West Texas Intermediate crude futures contract settled 55cts lower at $45.88 bbl while IntercontinentalExchange July Brent crude futures settled 61cts lower at $48.73 bbl.

In arbitrage trade, the Brent premium over WTI eased 6cts on the day to $2.85 bbl at the close. However, analysts noted the contango for WTI has flattened through mid-2019.

The NYMEX June ULSD futures contract declined 1.35cts to settle at $1.4421 gallon, off a $1.4672 three-day high, with the June RBOB futures contract easing 2.83cts to $1.4895 gallon at settlement, off a $1.5296 three-day high.

In currency trade, the U.S. dollar index rallied to a 19-day high amid expectations the U.S. Federal Reserve would raise the federal funds rate the next time the central bank meets in mid-June, with a stronger dollar bearish for WTI crude oil futures.

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