Oil Futures Retreat on Profit Taking

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled lower Monday afternoon. This was due to profit taking triggered by concerns about rising U.S. crude oil production and estimates that a build in crude inventories occurred during the week-ended Jan. 26.

"We saw a little profit-taking today on concern we will see an increase in crude oil inventory, and with the Fed meeting also coming on Wednesday, a lot of people are cutting their risk exposure, " said analyst Phil Flynn at Price Futures.

Flynn estimated crude stocks in the United States increased by 2.0 million bbl last week, while gasoline and distillate supplies may have been drawn down by 2.0 million bbl and 3.0 million bbl, respectively, during the same period.

If the Energy Information Administration [EIA] confirms the crude estimate in its weekly oil report set for release on Wednesday (1/31), it would be the first increase in 11 weeks.

Since Nov. 10, domestic crude supply has declined by 47.4 million bbl to 411.6 million bbl, based on EIA data for the week-ended Jan. 19. That's the lowest supply level in better than 2-1/2 years and down 76.7 million bbl or 15.7% versus supply on-hand a year ago.

Also on Friday (1/26), Baker Hughes reported that U.S. drillers added 12 rigs to the oil patch last week to a 759 five-month high, feeding into concerns about increasing domestic crude oil production.

EIA data for the week-ended Jan. 19 showed U.S. crude production increased by 128,000 bpd to a nearly five-decade high of 9.878 million bpd, up 917,000 bpd versus a year earlier.

Despite today's oil futures losses, spot-month West Texas Intermediate crude is up $51.14 or 8.6% so far this month, while spot-month Brent crude trading on the Intercontinental Exchange rose $2.59 or 3.7% during the same period. The trans-Atlantic arbitrage or the Brent premium over WTI has narrowed to a 5-1/2 month low at $3.90 bbl at the close.

WTI has been particularly supported in recent weeks by falling crude supply at the Cushing hub in Oklahoma, where crude supply was at a three-year low of 39.244 million bbl during the week-ended Jan. 19. Reduced crude flow on the Keystone Pipeline since a now repaired leak last month has affected crude deliveries from Canada.

Brent has been supported during the same period by the two-year production agreement between members of the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producers. Last week, energy ministers from Saudi Arabia and Russia said the supply agreement set to expire at year's end could be extended into 2019.

NYMEX March WTI crude oil futures settled 58cts lower at $65.56 bbl, down from a 38-month spot high of $66.66 traded on Jan. 25. ICE March Brent crude settled down $1.06 at $69.46 bbl, after trading at a 38-month spot high of $71.28 bbl on Jan. 25, with the April contract settling down 95cts at $69.20 bbl.

NYMEX February ULSD futures fell 3.12cts to $2.1048 gallon while the March contract was down 2.97cts at $2.0978 gallon settlement. February RBOB futures were little changed today, down 0.28cts to $1.9349 gallon settlement while March contract settled down 1.03cts at $1.9160 gallon. The March Brent contract and the February RBOB and ULSD contracts are set to expire at the close of trade on Wednesday (1/31).

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