Oil Futures Selling Continues

Oil Futures Selling Continues

NEW YORK (DTN) -- New York Mercantile Exchange oil futures were lower Thursday morning, extending Wednesday's selloff to fresh multi-week lows after U.S. data showed an increase in domestic crude production that offset a steep crude stock draw during the week-ended Aug. 11. While the Energy Information Administration [EIA] on Wednesday showed an 8.9 million bbl crude stock decline to a 19-month low of 466.5 million bbl, the overriding bearish factor remains U.S. oil production that climbed 79,000 bbl to a 25-month high of 9.502 million bpd last week.

"U.S. oil production increase has averaged a 20,000 to 25,000 bpd every week and we see no reason for that pace to change in coming weeks," said Houston-based analyst Kyle Cooper at ION. "Thus, we expect total U.S. oil production to exceed the previous 9.610 million bpd peak in September or October at the latest."

On products, the EIA report showed unexpected stock builds of 22,000 bbl for gasoline and 702,000 bbl for distillate fuels while implied demand fell during the week by 275,000 bpd for gasoline and by 288,000 bpd for distillates.

Gasoline demand was down 247,000 bpd or 2.53% versus a year ago, with the market preparing for lower demand after Labor Day, observed on Sept. 4.

Globally, several recent reports last week showed the Organization of the Petroleum Exporting Countries produced more oil in July, as Libyan output recovered while other members missed their production quotas. Libya is exempt from an OPEC agreement that cuts 1.2 million bpd in crude production for 15 months through the end of the first quarter 2018. Ten non-OPEC oil producing countries including Russia reached a companion pact, reducing their oil output 558,000 bpd.

The International Energy Agency last week said efforts by OPEC and 10 non-OPEC producers to bring down global supply to its five-year average with the production agreements has thus far been unsuccessful, although the agency acknowledged that global supply has eased.

On June 30, commercial crude oil stocks held by the Organization for Economic Cooperation and Development stood at 3.021 billion bbl, below 2016 levels but still more than 219 million bbl above the five-year average, IEA added.

Technical pressure is also weighing on the oil futures complex, with West Texas Intermediate crude testing support at $46.23 bbl. In early trade, September WTI crude futures were down 25cts at $46.53 bbl, off a $46.46 fresh three-week spot low. October Brent crude on the IntercontinentalExchange eased 22cts to $50.05 bbl, off a $50 three-week spot low.

September ULSD futures dropped 2.38cts to $1.5506 gallon, off a three-week spot low of $1.5488, and September RBOB futures declined 2.44cts to $1.5394 gallon, off a four-week spot low of $1.5374.

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