Oil Futures End Lower

NEW YORK (DTN) -- Spot-month oil futures on the New York Mercantile Exchange settled lower across the board Tuesday afternoon after reversing off fresh highs posted earlier today. The selloff was linked to profit-taking, the Energy Information Administration's call for higher crude oil production next year in the United States and on a strengthening U.S. dollar.

"The market was overbought after rallying yesterday and this morning because of the Forties crude pipeline outage, that's why the funds started to sell," said Phil Flynn, an analyst at Price Futures in Chicago. "But I also heard talk about the EIA's call for record crude production next year."

EIA's Short-term Energy Outlook for December issued at midday raised their global oil demand forecast for 2018 by 200,000 barrels per day (bpd) and also increased their projection for supply for the year. It forecasted U.S. crude production to increase by an average of 800,000 bpd to more than 10.0 million bpd by mid-2018, which would be a record high.

In total, EIA sees global oil production growth of 2.1 million bpd in 2018, of which production by the Organization of the Petroleum Exporting Countries is projected to grow by 250,000 bpd year-over-year to 32.71 million bpd, while non-OPEC supply is forecast to grow by 1.72 million bpd to 60.34 million next year.

The agency expects global oil demand to increase by 1.62 million bpd in 2018, up from growth of 1.39 million bpd in 2017.

Elsewhere in the economy, the dollar rallied to a one-month high on expectation the U.S. Federal Reserve would announce a hike in the federal funds rate Wednesday amid economic optimism, with recent production and jobs data showing a strong U.S. economy. The dollar and oil prices often trade inverse to each other.

Earlier, NYMEX West Texas Intermediate crude oil and RBOB contracts posted two-week highs on expectation for a U.S. crude stock draw, while ULSD and Brent futures on the Intercontinental Exchange posted 2-1/2-year highs after a North Sea crude pipeline was shut on Monday amid severe cold weather.

The 450,000-bpd crude pipeline that transports Forties crude to Scotland was shut due to cracks caused by a severe cold snap sweeping through Scotland. Forties production is one of the four crude streams feeding the international Brent crude benchmark, and accounts for about 40% of Brent supply.

The market now awaits the American Petroleum Institute to release its update on oil inventories for the week-ended Dec. 8 at 4:30 p.m. EST. A survey Tuesday morning showed the market estimates an average crude oil stock draw of 4.0 million barrels (bbl), with gasoline stockpiles estimated to be unchanged while distillate fuel inventories are seen to have increased by 250,000 bbl.

At the close, NYMEX January WTI crude oil futures contract were 85 cents lower at $57.14 bbl, reversing down from a $58.56 two-week spot high. ICE February Brent settled $1.35 lower at $63.34 bbl, reversing down from a $65.83 fresh 2-1/2-year high on the spot continuation chart.

NYMEX January ULSD futures settled 1.70 cents lower at $1.9336 gallon, reversing off a $1.9812 2-1/2 year spot high. January RBOB futures settled 2.90cts lower at $1.6976 gallon, coming off a $1.7589 two-week high.

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