Oil Lower in Thursday Trade

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures retreated Thursday morning on profit taking after the U.S. Energy Information Administration on Wednesday reported unexpected domestic stock builds for oil products while tension in Iraq took a backseat.

The report for the week-ended Oct. 13 showed gasoline inventories rose 908,000 bbl to 222.3 million bbl while distillates inventories increased by 528,000 bbl to 134.5 million bbl. While total U.S. crude stocks tumbled 5.7 million bbl, crude stocks in Cushing, Oklahoma, rose 202,000 bbl, and implied demand fell across the board during the week profiled.

Still, the downside for oil futures was curbed by lingering geopolitical risks including tension in northern Iraq. Kurdish oil exports were reduced by half to 250,000 bpd after Iraqi troops took over the biggest oil fields from Peshmerga forces on Wednesday.

The Peshmerga fighters today retreated from their recent positions and back to the areas the Kurds held in 2014. The conflict began Sunday but was triggered by the Sept. 25 Kurdish referendum.

This week's routing of the Kurdish fighters may bring a quick end to the skirmishes, said analysts.

It comes as global crude supply keeps tightening as the Organization of the Petroleum Exporting Countries and 10 non-OPEC producers, including Russia, mostly comply with their agreement to cut output by 1.8 million bpd.

These producers are now discussing extending the cuts through the end of 2018, and a consensus is now emerging to do just that, said Mohammad Barkindo, secretary-general of OPEC.

The cuts are speeding up rebalancing of the market, with global demand expected to top 100 million bpd by 2020, Barkindo added.

At 9:00 AM ET, NYMEX November ULSD futures declined 3.14cts to $1.7714 gallon and November RBOB futures eased 1.34cts to $1.6295 gallon, with short-term technical trends lower.

NYMEX November West Texas Intermediate futures dropped 87cts to $51.17 bbl ahead of the contract's expiration at the close of trade on Friday (10/20). The December WTI contract moved in tandem, holding a modest 21cts premium to the expiring November contract.

December Brent crude futures on the Intercontinental Exchange tumbled $1.04 to $57.11 bbl, trading at a $5.94 bbl premium to WTI. Brent's wide premium to WTI reflects geopolitical tensions that have bolstered the international crude price marker against U.S. crude values, as well as the tightening global supply due to OPEC output cuts.

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

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