Oil Lower in Morning Trade

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures reversed lower Thursday morning after failing to sustain the prior day's rally, with West Texas Intermediate crude and ULSD futures pulling back from fresh multi-month highs amid technical pressure.

The futures tumble also comes on the backdrop of data showing a continued U.S. crude oil stock buildup and domestic production rates returning to the levels seen before Hurricane Harvey hit the Texas Gulf Coast nearly a month ago.

The Energy Information Administration's statistics for the second week of September detailed a 157,000 bpd or 1.7% jump in weekly domestic oil production to a 9.51 million bpd four-week high and 1.0 million bpd above the output level seen a year ago.

A larger-than-expected 4.6 million bbl increase in weekly crude supply despite a 5.5% spike in refinery runs shown in the EIA data also demonstrates how quickly U.S. oil producers and refiners have recovered from Harvey.

Talk of the potential extension to production cuts by the Organization of the Petroleum Exporting Countries and 10 non-OPEC producers has helped keep the paper market afloat recently, but uncertainties remain, said analysts.

There is an emerging consensus to extend the cuts of 1.8 million bpd beyond March 2018, but with no agreement on details. There could still be unforeseen geopolitical problems, particularly with Iran that could prevent a deal from happening, analysts cautioned.

On Friday, the Joint Ministerial Monitoring Committee comprising five OPEC members and non-OPEC producers are scheduled to discuss compliance with the terms of the current agreement. A Kuwaiti oil official told Bloomberg this morning that compliance with the deal is great at more than 100%.

At last glance, NYMEX November WTI crude contract fell 31cts to $50.38 bbl, reversing off a $50.79 fresh four-month high posted earlier, with the October contract having expired on Wednesday. WTI continues to test $50.42 resistance even after it settled above $50 bbl on Wednesday for the first time since May 25.

"WTI is still looking good and could break above resistance, but we just don't know," said analyst Phil Flynn at Price Futures.

November Brent crude on the Intercontinental Exchange slipped 22cts to $56.07 bbl, moving away from Wednesday's $56.48 fresh five-month spot high, and the Brent premium over WTI narrowed to $5.69 bbl, down 19cts versus Wednesday's close.

In products trade, NYMEX October ULSD futures contract has since turned lower after nudging up 0.28cts to $1.8098 gallon, off a 26-1/2 month high of $1.81025. October RBOB futures tumbled 1.96cts to $1.6355 gallon, off a $1.6328 one-week spot low while the backwardation narrowed to 3.21cts above the November contract.

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