Oil Futures End Down Wednesday

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled lower Wednesday afternoon on concern rising supply from the United States and Libya would keep the market oversupplied for much longer than previously thought.

The Energy Information last reported U.S. crude output at a 21-month high of 9.32 million barrels per day (bpd) as of May 19 while a year-on-year crude surplus narrowed slightly to 10.8 million barrels (bbl).

In Libya, oil production rose to 800,000 bpd last week, said the state-run oil company, and output is expected to climb further to 1.1 million bpd by August, which would the highest since 2014.

This supply growth from Libya, the U.S. and Nigeria is returning to the market a portion of ongoing production cuts by Russia, Saudi Arabia and other major producers. It also delays the pace at which the market can rebalance supply and demand.

"There's a lack of confidence that OPEC will reduce global surplus with Libya and U.S. oil shale adding more crude to the market," said analyst Tom Bentz at ABN AMRO. "There was another report today showing OPEC's compliance is down to 92% from 96% in April. What we are waiting to see is if demand is picking up again."

Markets have been under pressure since May 25 when the Organization of the Petroleum Exporting Countries and several non-OPEC producers agreed to extend their current 1.8 million bpd in output cuts through early next year but without deepening the cuts. The initial six-month supply agreement was due to end June 30, but will now continue through March 2018.

The market thinks that's insufficient to counter growing supplies from Libya and U.S. oil shale producers who analysts said were adding 0.8 for every barrel OPEC takes out of the market.

The NYMEX July West Texas Intermediate crude futures contract settled $1.34 lower at $48.32 bbl, off a $47.73 better than two-week low on the spot continuation chart. The WTI contract is down $1.01, or 2%, for the month, marking the third straight monthly loss for the spot-month contract. The WTI contract broke below support at $47.88 intraday, with additional support at $46.91.

July Brent crude oil futures on the IntercontinentalExchange expired $1.53 lower at $50.31 bbl after breaking below the psychological $50 bbl level for the first time in three weeks, testing support at $49.71 with a $49.81 low. Spot-month Brent futures are down $1.42 or 2.7% for the month. The August Brent settled down $1.48 at $50.76 bbl.

The spot-month Brent premium to WTI fell to a three-month low at $1.99 bbl, down 41cts on the month.

The NYMEX June ULSD futures contract dropped 3.41 cents to $1.5153 gallon at expiration, breaking below support at $1.5009 with a $1.4990 two-week low. The July contract was down 3.56 cents to $1.5179 gallon settlement. The spot-month ULSD contract gained 1.13 cents, or 0.7%, in May.

The NYMEX June RBOB futures contract expired 2.67 cents lower at $1.6122 gallon, paring a decline to a $1.5890 two-week low, with the July contract settling down 2.78 cents at $1.5965 gallon. Spot-month RBOB futures gained 6.42 cents, or 4.1%, for the month.

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