Oil Sharply Lower Monday

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures moved sharply lower Monday morning, starting October and the fourth quarter on the back foot amid a strengthening U.S. dollar and higher production in the United States and globally.

The greenback rallied to five-week high overnight on expectation the U.S. Federal Reserve will raise interest rates again later this year. The improving economy allows the central bank to unwind its stimulus measures after nearly a decade. The euro declined versus the dollar after a Spanish crackdown on an illegal referendum by Catalonia on Sunday spooked investors.

On supply, oil services firm Baker Hughes, Inc. on Friday reported the number of active U.S. oil rigs increased by six last week to 750, marking the first gain in four weeks. The drilling report followed Energy Information Administration data released Wednesday (9/27) showing U.S. crude oil production ramped up 37,000 bpd to 9.547 million bbl during the week-ended Sept. 22, up 1.05 million bpd versus a year ago and 1.4 million bpd above its five-year average.

"Crude oil production has now fully recovered the Hurricane Harvey production losses and is projected to exceed the 9.61 million bpd June 2015 level in the next few weeks," said analyst Kyle Cooper at IAF Advisors.

In addition, a survey by Reuters showed crude output by the Organization of the Petroleum Exporting Countries increased by 50,000 bpd in September as the cartel's compliance with its agreement to cut production fell to 86%. In late September, OPEC reported its compliance rate in August at 116%.

OPEC and 10 non-OPEC producers agreed to cut production 1.8 million bpd effective January through March 2018, and recent negotiations by the producers to extend the cuts through either June or December 2018 have gone nowhere.

On Sunday, Nigerian President Muhammadu Buhari said that he would maintain the momentum of peace talks with stakeholders in the restive oil-rich Niger Delta region, that have helped the country's oil production recover this year.

At 9:00 AM ET, NYMEX November West Texas Intermediate crude contract was $1.13 lower at $50.54 bbl, near a $50.47 one-week low. December Brent crude futures trading on the Intercontinental Exchange declined $1.03 to $55.76 bbl, off a 1-1/2-week spot low of $55.67, with the November contract having expired on Friday.

NYMEX November ULSD futures tumbled 4.08cts to $1.7692 gallon while November RBOB futures declined 3.22cts at $1.5588 gallon, near a six-week spot low of $1.5572.

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