Oil Settles Down on Bearish Sentiment

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled lower Tuesday afternoon after a choppy session, falling for the second straight day after traders questioned how serious the Organization of Petroleum Exporting Countries is about disciplining members who are not meeting their pledges to cut production.

OPEC issued a statement that said nothing substantive after a two-day meeting in Abu Dhabi to improve compliance with their 1.8 million bpd in output cuts. Instead, the statement disappointed market players who expected the oil cartel to act tougher against Iraq, the United Arab Emirates, Kazakhstan and Malaysia that all produced above their quotas last month.

"Sentiment is bearish now, and that should worry market bulls, but I expect that in a few weeks we are going to get even more bearish when refinery maintenance begins [after Labor Day]," said analyst Kyle Cooper at ION Energy in Houston. "The OPEC statement only clouded things."

Also weighing on sentiment, the Energy Information Administration's Short Term Energy Outlook for August issued today said Libyan and Nigerian production rose in July. The two African OPEC members were exempt from the 15-month OPEC production cuts, although Nigeria last week promised to cap its output at 1.8 million bpd going forward.

The futures complex got a brief lift this morning on reports Saudi Arabia is expected to cut oil exports to Asia by 10% in September, but the lingering concern over global oversupply offset any positive impact of the Saudi report.

The market also ignored STEO's higher for estimate global demand for 2017 and 2018. In the STEO report, EIA estimated global oil demand at 98.413 million bpd this year and at 100.017 million bpd next year, up 28,000 bpd for 2017 and 16,000 bpd for 2018 versus July estimates. The STEO report left unchanged estimate for U.S. crude production at 9.3 million bpd for 2017 and 9.9 million bpd for 2018.

The market awaits weekly oil data from the American Petroleum Institute due at 4:30 PM ET and tomorrow from the EIA. A DTN survey anticipate stock draws of 2.8 million bbl for crude oil, 1.3 million bbl for gasoline and 500,000 bbl for middle distillates.

"The complex has flip-flopped because there's so much uncertainty in the market, so what we are waiting for is the API to clear up things," said analyst Phil Flynn at Price Futures in Chicago.

September West Texas Intermediate crude futures settled 22cts lower at $49.17 bbl. October Brent on the IntercontinentalExchange eased 23cts to $52.14 bbl.

NYMEX September ULSD futures settled 1.06cts lower at $1.6292 gallon, off a $1.6143 better than one-week spot low. September RBOB futures eased 0.91cts to $1.6208 gallon, off a near two-week low of $1.5956.