Oil Posts Fresh Losses Tuesday

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures posted fresh losses Tuesday morning, with West Texas Intermediate crude at a two-week low, ULSD futures a six week low, and RBOB futures a four-week low. April Brent crude futures on the Intercontinental Exchange traded at a five-week low on the spot continuation chart.

The decline for oil futures was driven by an extended rout in global equities in overnight trade and expectations U.S. crude inventories and production rose again last week. Markets in Asia and Europe fell overnight and the Dow Jones Industrial Average opened 530 points or 2% lower today, but has since recouped the losses in volatile early trade on Wall Street.

The Dow is down nearly 10% from its Jan. 26 peak, and analysts are starting to talk of potential correction. A correction is a 20% decline from a recent high.

On Monday, the Dow plunged nearly 1,200 point in the biggest one-day decline in history, coming after about 650 point drop on Friday (2/2) on fear the economy is heating up and inflation could get out control. The selloff was triggered by Friday's (2/2) U.S. employment report showing wage growth jumped 2.9% year-on-year in January.

The U.S. Federal Reserve could raise interest rates over the coming months to fight inflation, which would make equities and commodities less attractive as investments and could slow down economic growth, said analysts. However, fundamentals of the economy remain strong, with the U.S. unemployment rate holding steady at a 4.1% 17-year low in January for the fourth consecutive month.

In currency trade, the U.S. dollar strengthened, trading at a two-week high versus a basket of six major world currencies, with a stronger dollar bearish for oil futures. The U.S. currency recently fell to a three-year low.

An early DTN survey shows analysts estimate a 2.75 million bbl U.S. crude stock build during the week-ended Feb. 2 following a 6.8 million bbl build the week prior. On products, analysts estimate stock draws of 1.5 million bbl for gasoline and 2.75 million bbl for distillates during the week profiled.

The American Petroleum Institute will issue its weekly data at 4:30 PM ET while the Energy Information Administration's weekly oil report is due out Wednesday.

U.S. crude production increased 41,000 bpd to 9.919 million bpd in late January, with speculation that output again increased last week supported by data from Baker Hughes issued Friday (2/2). The oil services provider reported six rigs were deployed in the U.S. oil patch last week, bringing the total number of active oil rigs to a 765 six-month high.

Last month, EIA forecasted U.S. crude production would average at a record high 10.27 million bpd this year for annual growth of 1.0 million bpd. EIA's Short-term Energy Outlook for February will be released today at midday.

In early trade, NYMEX March WTI crude was down 71cts at $63.44 bbl, off a low of $63.12. ICE April Brent crude was down 89cts at $66.73 bbl, off a low of $66.53. NYMEX March ULSD futures tumbled 3.01cts to $1.9895 gallon, near a $1.9876 low. The March RBOB futures dropped 3.65cts to $1.8101 gallon, off a low of $1.8075.

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