Oil Futures Settle Lower

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled lower Monday afternoon on worry over whether the Organization of the Petroleum Exporting Countries would extend their production cut agreement and on a stronger U.S. dollar, while questions about the European Union economy surfaced after Germany failed to form a government. The West Texas Intermediate December contract expiration this afternoon also spurred position squaring.

"Instability in Germany, the biggest economy in Europe, could affect demand, and that's why the euro fell against the dollar," said analyst Phil Flynn at Price Futures. "But the other thing is the market was long coming in, and so the German situation inspired selling that was already set to go, and so we saw a lot of selling of the December WTI contract before the expiration."

The euro fell versus the dollar after pro-business Free Democratic Party broke off talks to form a coalition government with Chancellor Angela Merkel. They had been negotiating since the September election.

After the talks collapsed overnight, Merkel said another election is better than running a minority government, a move that would keep investors on edge until early next year. She has now no option for a coalition government after the Social Democrats also refused to join her coalition. The political uncertainty could adversely affect economies Europe and their demand for oil.

The weekend news comes ahead of an OPEC biannual meeting on Nov. 30 in Vienna that will include as many as 10 non-OPEC producing countries to discuss market conditions and the future of their pact to cut 1.8 million bpd in production that has been in place since January.

The emerging consensus among OPEC members is to extend the agreement through the rest of 2018 rather than let it expire at the end of March 2018. Their goal is to rid the global market of a protracted supply overhang.

However, non-OPEC Russia doesn't want the extension to be announced at the Nov. 30 summit. Russian energy minister Alexander Novak who has been discussing the issue with Saudi energy minister Khalid al-Falih, said he would like to see how fundamentals shape up through the winter before announcing any extension of the output cuts.

NYMEX December WTI crude oil futures expired 46cts lower at $56.09 bbl, reversing off a four-day high of $56.76, and the January WTI contract settled down 29cts at $56.42 bbl. The January Brent crude contract settled 50cts lower at $62.22 bbl on the Intercontinental Exchange, with the premium to WTI at $6.13 bbl. NYMEX December ULSD futures dropped 1.45cts to $1.9321 gallon at settlement. December RBOB futures were little changed, easing 0.09cts to $1.7438 gallon.

Looking ahead, Kyle Cooper, an analyst at IAF Advisors, estimates stock draws for crude and refined products occurred during the week-ended Nov. 17.

The American Petroleum Institute will issue its weekly supply survey Tuesday afternoon and the Energy Information Administration their report Wednesday morning.

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