Oil Sinks Into Close Monday

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange and the October Brent contract on the IntercontinentalExchange registered sharp losses for the week's opening session, with the contracts printing 2-1/2 and three-week lows as higher U.S. crude production is expected in September.

After wobbling on either side of Friday's settlement values in morning trade, a projection by the Energy Information Administration that U.S. crude production would increase in September fortified bearish sentiment that output cuts by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producing countries would be offset to some extent by U.S. production.

Earlier Monday the EIA released its Drilling Productivity Report projecting U.S. onshore oil production would increase 117,000 bpd from August to 6.149 million bpd in September. EIA also reported an increase in drilled but uncompleted wells from June to July, up 208 DUCs to 7,059, with 2,330 of those wells in the prolific Permian basin in western Texas. DUCs can be brought into production faster and at a lower cost since some of the cost in drilling the well has already been spent.

Oil futures were under pressure late last week following monthly outlooks from OPEC and the International Energy Agency that cited higher OPEC production in July despite 1.2 million bpd in production cuts the group has agreed to for a 15-month term through March 2018. IEA noted ebbing compliance by OPEC against their quotas, and the slow rebalancing between global oil production and demand.

The market was buoyed to a degree on news that oil output from Libya, an OPEC member exempt from the production agreement due to militant activity, declined about 100,000 bpd earlier in August because of security threats.

The news wasn't enough to push the market higher, with a bearish market sentiment also fed by the rapidly approaching end to the summer driving season as Labor Day nears. Gasoline demand in the United States consistently declines in September from August.

A stronger U.S. dollar also weighed on West Texas Intermediate futures since crude trades internationally in the U.S. currency.

The bearish news was joined by technical pressure, with NYMEX WTI and RBOB futures and the ICE Brent contract all breaking below initial support points.

NYMEX September WTI futures settled down $1.23 at $47.59 bbl and near a $47.43 three-week low after breaking below support at $48.44 bbl. ICE October Brent crude plumbed a $50.58 bbl 2-1/2 week low on the spot continuation chart after breaking through support at $50.90, settling down $1.37 at $50.73 bbl.

NYMEX September RBOB futures cracked below technical support at $1.59 gallon, tumbling to a $1.5741 three-week low on the spot continuation chart before settling at $1.5767 gallon, down 3.63cts. NYMEX September ULSD futures held support at $1.6004 with a $1.6036 gallon 2-1/2 week spot low, ending the session down 2.89cts with a $1.6057 gallon settlement.

Brian Milne can be reached at brian.milne@dtn.com

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