Oil Futures Follow Broader Market Lower

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures with nearest delivery and the front-month Brent contract on the Intercontinental Exchange sold off sharply for a second session amid another big drop by equities, as the broader market corrects lower from record highs triggered by concern over rising inflation and higher borrowing costs that have led to widespread expectations for multiple, quick succession interest rate hikes by the Federal Reserve.

The Dow Jones Industrial Average tumbled nearly 1,200 points Monday following a more than 650-point drop on Friday, erasing better than 6.5% of its value during the past two sessions. The U.S. dollar also strengthened to a one-week high after falling to a three-year low in January.

The selloff in equities and a stronger U.S. dollar added to concern for oil market bulls that were already closely watching climbing U.S. oil production, which topped 10.0 million barrels per day (bpd) in November 2017 for the first time since 1970, according to delayed data released last week by the Energy Information Administration.

Elevated oil prices that are at better-than-three-year highs are expected to spark sharp growth in U.S. oil production, as producers take advantage of a higher-priced market. On Friday, Feb. 2, oil services provider Baker Hughes reported the number of newly activated oil rigs in the United States increased by 18 over the most recent two-week period to a 765 six-month high.

EIA in its Short-term Energy Outlook released in January forecasts U.S. crude oil production at a record high of 10.27 million bpd, up 1.0 million bpd. EIA releases its latest STEO midday Tuesday.

NYMEX March West Texas Intermediate settled down $1.30 at $64.15 per barrel (bbl), trimming a decline to a $63.55 two-week low. The contract tested retracement support at $63.86 with next support marked at $62.13.

April Brent crude on ICE traded down to a $67.18 one-month low on the spot continuous chart, breaking below support at $67.60 to settle down 96 cents at $67.62 bbl. Brent has additional support at the $66.20 retracement point.

NYMEX March ULSD futures settled down 3.39 cents at $2.0196 gallon, paring a decline to a six-week spot low of $2.0090, breaking below retracement support at $2.0348. Next support is marked at $2.0014.

NYMEX March RBOB futures fell to a $1.8335 2-1/2 week spot low, settling down 2.54 cents at $1.8466 gallon. The contract has support at $1.8349 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com

(BE)

Brian Milne