Oil Tumbles on EIA's US Supply Outlook

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures ended lower for the third straight day Tuesday. This was due to concern over an outlook calling for higher U.S. crude oil supply and production, with investors also keeping a close eye on volatile equities trading and a stronger U.S. dollar.

"Crude prices were weak earlier in the day but they went further down after the Short Term Energy Outlook came out forecasting higher [U.S.] production, and the stock market is still very shaky," said analyst Phil Flynn at Price Futures.

The Energy Information Administration Tuesday afternoon released its monthly STEO revising up expected oil supply from countries that are not part of the Organization of the Petroleum Exporting Countries by 300,000 bpd this year and 33,000 bpd for 2019.

EIA projects non-OPEC supply would grow at the rate of 2.35 million bpd to 61.04 million bpd in 2018, revised up 350,000 bpd versus January's outlook. For 2019, non-OPEC supply is forecast to increase at an annual rate of 1.27 million bpd to 62.31 million bpd, revised up 33,000 bpd from January.

EIA revised its U.S. crude production outlook up 300,000 bpd from January to 10.6 million bpd this year, up 1.3 million bpd versus 2017. If achieved, 2018 production would be the highest annual average on record, said EIA.

A DTN survey showed estimates for a U.S. crude stock build of 2.75 million bbl for the week-ended Feb. 2. However, crude stocks at Cushing, Oklahoma, delivery hub for NYMEX West Texas Intermediate crude oil futures are estimated to have declined by 2.5 million bbl during the same week.

The survey estimated U.S. gasoline supply declined by 1.5 million bbl while distillate fuel inventory is estimated to have been drawn down by 2.75 million bbl during the week-ended Feb. 2.

The American Petroleum Institute will release its weekly oil statistics at 4:30 PM ET, while EIA will issue its weekly report at 10:30 AM ET Wednesday.

On Wall Street, the Dow Jones Industrial Average has been extremely volatile, opening 530 points or 2.2% lower this morning before rebounding Tuesday afternoon, up more than 560 points or 2.3% at last look.

Monday's nearly 1,200 point or 4.6% drop for the Dow on inflation fears rippled across global financial and commodity markets, but analysts Tuesday said it was simply deleveraging, a short-term downward correction from a prolong uptrend that remains intact.

The U.S. dollar traded 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.

At settlement, NYMEX March WTI crude futures was down 76cts at $63.39 bbl, moving off a $63.12 two-week spot low. April Brent crude contract on the Intercontinental Exchange was down 76cts at $66.86 bbl, off a low of $66.53 four-week spot low. NYMEX March ULSD futures tumbled 3.45cts to a $1.9851 gallon settlement, near a $1.9824 five-week spot low. March RBOB futures plunged 4.14cts to $1.8052 gallon, off a four-week spot low of $1.8003.

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