Oil Futures Open Lower on Profit-Taking

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures moved lower Tuesday morning amid profit-taking with the West Texas Intermediate crude contract and Brent on the IntercontinentalExchange off fresh two-month highs, while ULSD futures eased off a better than five-month high on the first day of trade for the month of August.

The profit-taking was spurred by a combination of overbought market conditions, a strengthening dollar and a survey by Reuters showing oil production by the Organization of the Petroleum Exporting Countries rose in July by 90,000 bpd to a 2017 high led by a recovery in Libyan crude oil output.

OPEC and their allies are working to trim global supply but the pace of the stock drawdown has been slow. A technical meeting by a group of OPEC and non-OPEC members is set for Aug. 7-8 in Abu Dhabi to determine how to boost compliance with their 15-month agreement cutting production nearly 1.8 million bpd that began on Jan. 1.

The downturn also comes ahead of the release of weekly oil supply data. The American Petroleum Institute is scheduled to release its weekly oil report for the week-ended July 28 this afternoon while the U.S. Energy Information Administration will report its data Wednesday morning.

An initial survey shows crude stockpiles declined last week by about 3.0 million bbl and gasoline supply fell 1.5 million bbl. Distillates stockpiles are projected to have increased 500,000 bbl.

Crude oil inventories have been drawn down by some 25.8 million bbl since the end of June, while the NYMEX WTI crude oil futures contract has climbed by $4 bbl or 8.7% during that timeframe.

The EIA data showing stock draws have fueled optimism that the market is tightening both domestically and globally, although U.S. production continues to climb.

On Monday, EIA's monthly petroleum supply report showed the U.S. produced 9.169 million bpd of crude in May, up 59,000 bpd or 0.6% versus April while 316,000 bpd or 3.6% higher versus May 2016. EIA's most recent weekly data shows U.S. crude production slipped 19,000 bpd to 9.41 million bpd during the week-ended July 21.

While the increase in domestic crude output is brisk from May's production rate to the weekly figure in July, monthly production data has tracked roughly 150,000 bpd below weekly estimates for the second month in a row, highlighting the pitfalls of relying too closely on weekly data, said Barclays Capital in a note analyzing the report.

"That monthly report made us think production is falling faster than we've been led to believe, so that was helpful to the rally," said analyst Phil Flynn at Price Futures Group.

At 9:00 AM ET, NYMEX September WTI futures eased 28cts to $49.89 bbl, reversing off a nine-week spot high of $50.43 bbl. After September contract expired on Monday, the ICE October Brent crude contract eased 36cts to a $52.36 bbl early Tuesday, reversing off a nine-week high on the spot continuous chart of $52.93 bbl.

The NYMEX September ULSD futures contract was down 0.16cts at $1.6658 gallon, off a better than five-month spot high of $1.6765, after the August contract expired on Monday.

September RBOB futures slipped 0.47cts to $1.6719 gallon, with the market in backwardation amid strong seasonal demand.

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