Futures Mixed With Bearish Sentiment

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures moved mixed Monday morning, with bearish sentiment, a stronger dollar and data showing an increase in the number of active oil rigs in the United States keeping West Texas Intermediate range bound.

The mixed early price action follows short covering gains on Friday amid heated tensions between the U.S. and North Korea, with aides to President Donald Trump tamping down recent rhetoric between the two nuclear-armed nations. Trump's national security advisor, Gen. H.R. McMaster, said in Sunday television interviews with NBC, ABC and CNN that we are not closer to a nuclear war.

A bearish sentiment is also spurred by the quickly approaching end to peak summer demand for gasoline with Labor Day and a downturn in the short-term trend, with West Texas Intermediate crude testing technical support at $48.44 bbl in early trade while initial support for ULSD futures is pegged at $1.6004 and for the RBOB contract near $1.59.

Commodity Futures Trading Commission's Commitments of Traders report for the week-ended Aug. 8 released Friday afternoon showed light managed money selling in the WTI crude oil futures contract and net buying in ULSD and RBOB futures.

While U.S. petroleum inventories have been drawn down in recent weeks and months, the Organization of the Petroleum Exporting Countries is not doing more to reduce the global oil surplus, analysts said.

The analysts pointed to the International Energy Agency's report last week that showed global oil supply rose in July by 520,000 bpd from June, the third consecutive monthly increase, with year-on-year output up 500,000 bpd. The report added that OPEC output rose in July by 230,000 bpd to a 2017 high of 32.84 million bpd, led by a strong recovery in Libya.

Analysts said the data confirms that some of the 24 OPEC members and nonmembers participating in an ongoing agreement to cut production by nearly 1.8 million bpd have been cheating on their production quotas. In May, the agreement cut production was extended from June to March 2018.

In OPEC's Monthly Oil Market Report released last week, OPEC said secondary sources showed production by its members increased 173,000 bpd to 32.87 million bpd in July. During the summer months, consumption in some OPEC countries expands, including Saudi Arabia, with the kingdom increasing output in July. Saudi Arabia has shouldered the lion's share of the production cuts.

A Saudi Arabian official said in a report this morning that the kingdom won't make further unilateral production cuts.

In the United States, the domestic market is tightening, however.

The U.S. Energy Information Administration last week reported that crude stocks plunged 6.5 million bbl to a 475.4 million bbl 9-1/2 month low during the week-ended Aug. 4. U.S. oil production eased 7,000 bpd during the week to 9.423 million bpd, but output is 978,000 bpd above year prior.

Baker Hughes, Inc. on Friday showed the number of U.S. oil rigs rose last week by three to a better than two-year high of 768, and are up 372 versus a year ago. Analysts note too, that rigs are more efficient and have higher productivity rates than in years past.

At 9:00 AM ET, September WTI crude futures were 40cts lower at $48.42 bbl. October Brent futures on the IntercontinentalExchange eased 45cts to a $51.65 bbl. September ULSD futures contract tumbled 1.06cts to $1.6240 gallon while September RBOB futures were down 1.90cts at $1.5940 gallon. Oil futures have since moved mixed.

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