RBOB Leads Oil Futures Lower

NEW YORK (DTN) -- Spot-month oil futures on the New York Mercantile Exchange settled lower Wednesday afternoon led by an RBOB futures selloff after the U.S. Energy Information Administration showed a big stock build for domestic gasoline and higher crude oil production.

“Over the last two weeks, we have built up 12.5 million bbl in gasoline stocks as refinery utilization rate has been very high, and we are now heading into January, a period of poor demand and high run rates,” said Andy Lipow, who is president of Houston-based Lipow Oil Associates. “Heating oil situation is not that bad but ULSD futures was dragged down by gasoline.”

Others agreed.

“Gasoline demand is over 9.09 million bbl, which is 1.0 million bpd below production, so where do those barrels? I think some of the surplus will be exported, but still what we see is gasoline demand is weak,” said analyst Phil Flynn at Price Futures in Chicago.

The EIA’s Weekly Petroleum Status Report for the week-ended Dec. 8 showed a gasoline stock build of 5.7 million bbl, with gasoline production up 371,000 bpd to more than 10.1 million bpd. Distillate supply declined by 1.4 million bbl, the report showed.

Meanwhile, although crude oil stockpiles were drawn down by a bigger-than-expected 5.1 million bbl during the week reviewed, crude production increased 73,000 bpd to a 9.78 million bbl fresh 46-year high while 984,000 higher versus a year earlier, according to the report.

The crude stock draw was partly due to recent outage of Keystone pipeline following a leak in Marshall County of South Dakota, said Lipow. On the demand side, crude oil inputs declined 243,000 bpd with refinery runs easing 0.4% to 93.4% of operable capacity, data showed.

Earlier, the Organization of the Petroleum Exporting Countries’ Monthly Oil Market Report showed total OPEC crude output averaged 32.45 million bpd in November, down 133,000 bpd over the previous month and at the lowest production rate in six months.

The OPEC report revised up expectations for non-OPEC supply for both this year and in 2018, driven by higher-than-previously projected U.S. production growth. U.S. crude production in 2018 is expected to grow by 720,000 bpd to average 9.96 million bpd.

On the economic front, the U.S. dollar fell to a one-week low after the U.S. Federal Reserve this afternoon raised interest rates by 0.25% as expected, setting its short-term borrowing rate at a range of 1.25% to 1.5%, but the central bank left its future rate outlook unchanged.

The Fed suggested they would stay on a gradual pace of tightening monetary policy set by the retiring Chair Janet Yellen. The market was disappointed because investors had expected an aggressive pace of policy tightening.

“A rate hike wasn’t a surprise, but the market is now looking ahead to 2018 and they feel the Fed will continue on the same course they’ve been under Yellen,” Lipow added.

NYMEX January West Texas Intermediate crude oil futures settled 54cts lower at $56.60 bbl, off a three-day low of $56.55. ICE February Brent was 90cts lower at a $62.44 bbl settlement, continuing to backpedal from Tuesday’s $65.83 bbl 2-1/2 year high on the spot continuous chart.

NYMEX January ULSD futures dropped 2.92cts to a $1.9044 gallon settlement, continuing to fade from Tuesday’s $1.9812 2-1/2 year spot high. January RBOB futures slumped 5.09cts at settlement to $1.6467 gallon, ending near a seven-week spot low of $1.6438.

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