CRANBURY, N.J. (DTN) -- Nearest delivered West Texas Intermediate futures on the New York Mercantile Exchange eased to a fresh one-month low settlement while the spot-month RBOB and ULSD contracts edged fractionally higher after reversing from one-month intraday lows during a quieted down session following Wednesday's major selloff that was just short of posting the lowest settlements of the year.
August Brent crude futures on the IntercontinentalExchange did drop to the lowest settlement on the spot continuous chart since late November Wednesday, and again declined today, with the settlements the lowest since the day before the Organization of the Petroleum Exporting Countries reached an agreement to cut production.
"The petroleum market is undergoing a period of reassessment following Wednesday's 4%-5% drop on the back of bearish U.S. inventory for the week ended June 2," said Tim Evans, energy futures specialist with Citi Futures and OTC Clearing, in a market advisory Thursday.
Expectations that U.S. commercial crude supply declined for a ninth consecutive week last week were dashed after the Energy Information Administration reported a 3.3 million barrel (bbl) build, as imports increased, exports dropped from a record high 1.303 million barrels per day (bpd) during the week ended May 26 to a five-week low at 557,000 bpd, and refiners processed less crude following record high input the week prior at 17.227 million bpd.
More unnerving was the plunge in oil products supplied to market, which freefell 1.418 million bpd to a 19.34 million bpd six-week low during the week-ended June 2. Of that total, implied demand for distillates sunk 520,000 bpd to a 3.505 million bpd five-month low while apparent demand for gasoline dropped 505,000 bpd from an all-time weekly high to a 9.317-million-bpd five-week low.
The steep downshift in gasoline demand included most of the Memorial Day weekend, the unofficial kickoff to the summer driving season, exacerbating the concern over summer consumption. EIA in their Short-term Energy Outlook released Tuesday still expects record gasoline demand during the summer months.
The sharp shifts in the gasoline demand figures over the most recent two weeks is likely explained by downstream pre-stocking ahead of the Memorial Day holiday weekend, with excess product being worked down following the holiday.
"As the shock over the data fades and the market begins to face forward again, we think the focus will shift to the projected Q3 supply demand deficit that could run to 0.7 mmbpd or so," said Evans. "There are also those focusing even further forward, evaluating whether OPEC may need to extend production limits beyond their current March 2018 commitment, as well as some talk of a possible further reduction in output in order to refresh the fundamental support for prices."
EIA in Tuesday's outlook expects global oil inventory to be drawn down 200,000 bpd this year, with the draw in the third quarter projected to average 400,000 bpd.
The shift to a supply deficit against demand comes as OPEC and 10 non-OPEC oil producers are now in the six month of an agreement to cut nearly 1.8 million bpd of production that on May 25 was extended for nine months with the purpose of drawing global oil inventory down to its five-year average.
However, supply growth from oil producing countries that are not part of the agreement, mainly the United States, has frustrated OPEC's efforts. U.S. crude production has surged 621,000 bpd since OPEC announced their first production agreement on Nov. 30, 2016.
NYMEX July WTI futures ticked down 8 cents to a $45.64 bbl settlement, holding above a May 4th $45.52 bbl settlement on the spot continuous chart, with the previous low settlement registered on Nov. 29, 2016.
ICE August Brent crude settled down 20 cents at $47.86 bbl, with the previous low close on the spot continuous chart registered on Nov. 29 at $46.38 bbl.
NYMEX July RBOB futures firmed on the session with a $1.4919 gallon settlement, reversing off a $1.4854 gallon one-month low on the spot continuous chart. NYMEX July ULSD futures reversed off a fresh one-month spot low of $1.4098 gallon to settle up 0.61 cent at $1.4223 gallon.
Brian L. Milne can be reached at firstname.lastname@example.org
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