Oil Futures Lower on Stock Build

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange declined in early trading Wednesday, reversing recent gains as traders turned to industry reports for price signals as data showed an unexpected build in crude inventories and the potential for global reductions in previously projected demand, especially as Brent crude prices near $80 bbl.

Near 9:00 AM ET, NYMEX June WTI futures were down 39 cents to $70.92 bbl, with ICE July Brent 60 cents lower to $78.35 bbl, though still near its highest price in more than three years. NYMEX June RBOB futures were fractionally lower at $2.2044 gallon, with the June ULSD contract about a penny less at $2.2385 gallon.

Traders sold contracts as Tuesday's American Petroleum Institute report revealed an unexpected build in domestic crude inventories, showing commercial crude supply during the week-ended May 11 grew by 4.854 million bbl with 62,000 bbl of supply added to inventory at the Cushing, Oklahoma hub.

API data showed gasoline inventories slid 3.369 million bbl during the week profiled, while distillate supply declined 768,000 bbl.

Also, overnight data from the International Energy Agency revised its 2018 global oil demand forecast down 40,000 bpd for year-on-year growth of 1.4 million bpd amid rising crude prices. Global oil supplies held steady in April, IEA said, at close to 98 million bpd, with robust non-OPEC output offsetting lower OPEC production. Strong non-OPEC growth, led by the United States, pushed global supplies up 1.78 million bpd against year-ago levels. IEA forecasts non-OPEC output to grow by 1.87 million bpd in 2018, a slightly higher rate than seen in the previous monthly report.

"I think there's three things driving prices down. The build in API [crude stocks] was higher than anticipated, the IEA report was bearish, and you have a strong dollar right now." said Phil Flynn, senior market analyst with Chicago-based The Price Futures Group. "You really have a triple whammy against rising prices."

The U.S. dollar strengthened to a fresh six-month high in index trading Wednesday morning.

Flynn said market consensus for Wednesday's 10:30 AM ET release of Energy Information Administration data could also portend lower prices.

"Based off what we're hearing, the EIA data could come in close to what the API said," he said. "The consensus seems to indicate that maybe they got it right this week."

Flynn also pointed to a potential release from the Strategic Petroleum Reserve that could further add to recent crude stock gains. The SPR held 663.6 million bbl as of May 4, down 25.2 million bbl against year prior.

On the bullish side, distillate fuel inventory has been drawn down for five consecutive weeks through early May, and declined in 12 of the past 13 weeks to a 3-1/2 year low at 115.0 million bbl, down 33.7 million bbl or 22.7% year-on-year.

"The other thing is distillates," Flynn said, "They are dangerously low and if they get a bigger draw, that could be a real problem."

Brian Whary can be reached at brian.whary@dtn.com