Oil Lower in Tuesday Trade

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

CRANBURY, N.J. (DTN) -- Oil futures with nearest delivery traded on the New York Mercantile Exchange (NYMEX) and the front-month Brent contract on the Intercontinental Exchange were lower early Tuesday, again pressured by forecasts for climbing U.S. crude production, with output growth seen challenging the expected year-on-year increase in world oil demand.

Overnight, the International Energy Agency (IEA) released their Oil Market report for February that boosted their outlook for global oil consumption by 100,000 barrels per day (bpd) for year-on-year growth of 1.4 million bpd and consumption at 99.2 million bpd, with the revision from month prior spurred by an "optimistic GDP forecast" from the International Monetary Fund.

While also heralding a steep decline in commercial oil inventory held by the Organization for Economic Cooperation and Development in 2017, which erased 154 million barrels (bbl) of supply above their five-year average to 52 million bbl last year, IEA said higher U.S. output would offset the draw.

IEA said U.S. producers have dramatically reduced costs, and "are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth."

IEA's comments follow a 300,000 bpd upward revision by the Energy Information Administration week prior in their short-term outlook for U.S. production this year to 10.6 million bpd, up 1.3 million bpd from 2017, with output projected at 11.2 million bpd in 2019.

Noting the recent drop in oil prices due, in part, to profit-taking and price corrections in the broader market, IEA added, "the underlying oil market fundamentals in the early part of 2018 look less supportive for prices."

Near 9 a.m. ET, March West Texas Intermediate crude futures were down 55 cents at $58.74 bbl, and have since eased to $58.39 bbl, challenging last week's $57.87 bbl better-than seven-week low on the spot continuation chart. The decline comes despite a weaker U.S. dollar, which slipped to a one-week low.

ICE April Brent crude was down 41 cents at $62.18 near 9 a.m. ET, and have since traded at a $61.76 better-than nine-week spot low.

While still in backwardation, the calendar spreads for both Brent and WTI continue to narrow.

NYMEX March ULSD futures tumbled to a $1.8169 gallon 3-1/2 month low on the spot continuation chart in early trade, while down 1.19 cents at $1.8270 gallon near 9 a.m. ET.

NYMEX March RBOB futures slumped to a $1.6519 gallon better-than eight week spot low, while down 2.31 cents at $1.6554 gallon.

Despite expectations for strong economic growth in the United States and globally this year, the recent sell-off in equities triggered by concern over inflation and higher interest rates, not to mention the surge in major equity indices to a string of record highs, has sparked concern that consumers might spend less-than-previously projected amid worry over losses in the stock market. Reduced consumer spending would have a knock-on effect with energy demand, especially gasoline.

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

(BE)

Brian Milne