CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled lower on concern over rebuilding inventory early in 2018, reversing Wednesday's gains amid profit taking, with initial technical support holding.
After Wednesday's gains on expectations by the Energy Information Administration and the Organization of the Petroleum Exporting Countries for greater global oil demand this year detailed in their monthly reports, a neutral-to-bearish outlook released this morning by the International Energy Agency sparked profit taking.
The IEA outlook, which instigated a rally when released in September, dialed down expectations for higher oil prices with a forecast for global oil supply to build at roughly 800,000 bpd in the first quarter 2018 even as it said the market has been in balance since the second quarter, and expects it to return to balance from April through December 2018.
In September, "Uncertainty with some suppliers (Libya, Venezuela, Iran and northern Iraq) and signs of possibly slower than expected growth in US shale production, coupled with strong oil demand, provided upward momentum to the market. Producers looking for higher prices were on the verge of declaring victory," said IEA in their Oil Market Report released this morning, highlighting Brent futures rally to a $59.49 bbl intraday high on Sept. 26.
"However, more recently, enthusiasm has peaked and profit taking has set in," said IEA.
The viewpoint from the Paris-based agency suggests more range-bound trade for oil futures, with NYMEX West Texas Intermediate futures holding within a $42 to $55 bbl range for more than a year.
The lower settlements followed the delayed release of weekly data from the EIA, which reported U.S. crude production declined 81,000 bpd from a 27-month high to a 9.48 million bpd one-month low during the first week of October. The lower output rate comes on the heels of several media reports suggesting investors in domestic shale oil production are demanding discipline by drillers and a return on their investments, eschewing the produce all out model.
EIA's Weekly Petroleum Status Report for the week-ended Oct. 6 released late morning was mixed overall, and conflicted sharply with weekly estimates from the American Petroleum Institute issued late Wednesday.
EIA reported U.S. commercial crude supply was drawn down 2.7 million bbl to 462.2 million bbl, a six-week low, and the lowest inventory level since Hurricane Harvey wreaked havoc along the Texas coastline, knocking more than 20% of the country's refining capacity offline. The U.S. refinery run rate edged up 0.3% to 89.2% of operational capacity during the week reviewed, crossing above the historical five-year average for the first time since late August.
Oil supply at the Cushing supply hub in Oklahoma, the delivery location for NYMEX WTI futures, did increase again, up 1.3 million bbl for the seventh consecutive weekly build and to a 63.8 million bbl 4-1/2 month high. Oil supply at Cushing moved above the year-ago supply level for the first time since late April, and now accounts for 82.8% of working capacity at the key oil depot.
Crude supply is again rebuilding at Cushing as a widening discount between Brent crude and WTI amid tightening global oil supply due to strong global demand and production cuts from OPEC and 10 non-OPEC countries prompt higher production in North Dakota, and also draws Canadian grades.
The widening spread has spurred increased demand for U.S. crude, with exports having grown sharply this year. U.S. crude exports did drop a steep 481,000 bpd during the first week of October from late September, albeit from a record high of 1.984 million bpd. At 1.27 million bpd last week, U.S. crude exports marked their fourth highest weekly export rate on record.
NYMEX November WTI futures settled down 70cts at $50.60 bbl, holding over $50 bbl with a $50.15 intraday low. ICE December Brent ended the session down 69cts at $56.25 bbl, trimming a decline to a $55.88 intraday low after testing retracement support at $55.92 bbl.
Brent's premium to WTI futures ended flat at $5.65 bbl. In late September, Brent's premium reached a 28-month high at $6.80 bbl.
NYMEX November ULSD futures settled down 2.06cts at $1.7655 gallon after testing retracement support at $1.7441 with a $1.7489 intraday low. NYMEX November RBOB futures settled down 2.6cts at $1.5832 gallon.
Brian Milne can be reached at firstname.lastname@example.org
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