Oil Settles Down on Profit-Taking

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled lower Tuesday afternoon as traders booked profits ahead of weekly oil supply reports, with a stronger U.S. dollar adding to the downward pressure.

The greenback rallied to the highest level since Aug. 31 after Federal Reserve Janet Yellen said gradually raising interest rates is the most appropriate policy, reinforcing expectations for another rate hike this year.

The futures complex rallied overnight on bullish sentiment and worries over geopolitical tension in the Middle East, but came under selling pressure when the market saw no action by Turkey against the Kurdistan region in Iraq, said analysts.

Turkey had threatened to shut down a pipeline that ships over 500,000 bpd of oil from northern Iraq to an export terminal in Turkey's port of Ceyhan. This follows Iraq's Kurdish independence referendum on Monday.

Turkish leaders opposed the referendum because they said it could stir separatist sentiment in the Kurdish population in Turkey.

The global market is rebalancing due to 1.8 million bpd in output cuts by the Organization of the Petroleum Exporting Countries and their 10 non-OPEC producer allies, and so disrupting the Kurdish oil flow would tighten the market further, analysts said.

The latest DTN survey shows U.S. crude oil inventories are estimated to have increased by 1.0 million bbl during the week-ended Sept. 22, while gasoline supply is estimated to have been drawn down by 1.5 million bbl and distillate stocks estimated to have declined by 2.5 million bbl.

The American Petroleum Institute will issue its oil report at 4:30 PM ET and the Energy Information Administration will release its weekly oil report at 10:30 AM ET Wednesday.

NYMEX November WTI crude futures settled 34cts lower at $51.88 bbl after reversing off a $52.43 five-month spot high. November Brent futures fell 58cts to a $58.44 bbl settlement, having reversed off a 27-month spot high of $59.49. The Brent premium over WTI remained at a two-year high of $6.57 bbl.

NYMEX October ULSD futures settled 1.10cts lower at $1.8453 gallon, reversing off a near 27-month spot high of $1.8646. October RBOB futures tumbled 2.32cts to $1.6988 gallon at settlement, having reversed off a $1.7442 three-week high.

October ULSD, RBOB and Brent futures markets remained in backwardation, which indicates strong short-term demand.

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