Bearish IEA Triggers Profit-Taking

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower with spot-month West Texas Intermediate crude and Brent on the Intercontinental Exchange tumbling to better than one-week lows amid a broad-based selloff driven by concerns about global demand and rising crude oil production in the United States.

Analysts said easing geopolitical risks added downward pressure on the oil futures complex, which last week rallied to a two-month high for RBOB and better than two-year highs for spot-month WTI, ULSD and Brent contracts. This afternoon, December RBOB futures posted a better than two-week low while ULSD slipped to a one-week low.

"The market was under pressure because demand is expected to weaken," said analyst Phil Flynn at Price Futures. "The market needs to be fed every day, and with so much speculation we saw profit-taking as soon as the IEA released a report cutting its demand forecast."

In its Oil Market Report for November issued this morning, the Paris-based International Energy Agency cut its global oil demand forecast for 2017 and next year, a bearish adjustment that negated a bullish report issued Monday by the Organization of the Petroleum Exporting Countries.

The IEA forecast also came on the heels of Monday's Energy Information Administration's monthly drilling report that projected an increase in domestic crude oil production next month.

The IEA revised down its demand outlook by 50,000 bpd for 2017 and by 190,000 bpd for 2018. Although the 2017 demand adjustment is modest for the year, it masks a more significant downward revision in the fourth quarter of 311,000 bpd. The big fourth quarter revision is due to a slow start to winter weather in the Northern Hemisphere.

The IEA said if OPEC crude production remains at current rates, global oil supply would still exceed demand by 600,000 bpd during the first quarter 2018 and supply would surpass demand by 200,000 bpd in the second quarter 2018.

Echoing other analysts, Flynn said geopolitical tension in the Middle East that recently added a risk premium to the price of oil has faded and hedge funds now don't see further upside risk to prices.

"The rivalry between Saudi Arabia and Iran remains, but it's off the headlines this week, so we've taken that risk off the table, and that also why we are taking profits ahead of the API report," said Flynn.

On Monday, EIA in its Drilling Productivity Report projected an 80,000 bpd increase in oil shale output for December to 6.174 million bpd. EIA last week reported U.S. crude production climbed 67,000 bpd to a 9.62 million bpd 2-1/2 year high during the week ended Nov. 3.

December WTI crude futures settled $1.06 lower at $55.70 bbl, off a better than one-week low of $55.18. ICE January Brent settled 95cts lower at $62.21 bbl, off a $61.36 better than one-week low, and at a $6.36 bbl premium to WTI.

NYMEX December ULSD futures declined 2.51cts to $1.9070 gallon, off a $1.8846 one-week low. December RBOB futures dropped 3.17cts to $1.7612 gallon at settlement, off a better than two-week low of $1.7325.

George Orwel can be reached at