Oil Lower in Early Trade

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange (ICE) extended declines in early trade Wednesday as traders sold contracts in reaction to expected supply increases from Organization of the Petroleum Exporting Countries (OPEC) and Russia and bearish supply data from the American Petroleum Institute (API).

On Tuesday, media reports from Bloomberg News indicated the United States is pressuring OPEC to hike oil production by 1.0 million barrels per day (bpd) in reaction to the highest U.S. gasoline and diesel prices in more than three years. And in an effort to maintain current strong U.S. economic growth, Bloomberg revealed U.S. President Donald Trump has hinted to OPEC he's considering tapping the Strategic Petroleum Reserve in the event that OPEC fails to act.

Trader selling is likely to continue ahead of Wednesday morning's 10:30 a.m. ET weekly supply report from the U.S. Energy Information Administration (EIA). Tuesday's API supply report showed unexpected declines in distillate inventories and a larger-than-expected increase in gasoline inventories, which pulled products prices lower, while crude prices were supported by sizable draws in U.S. crude supplies.

API's weekly supply report showed a sizable 2.028 million barrels (bbl) draw in crude supplies during the week profiled with supply at the Cushing, Oklahoma, hub down 1.038 million bbl. Gasoline inventories, which were expected to rise by about 400,000 bbl, posted a 3.759 million bbl build while distillate supply, expected to increase by 800,000 bbl, declined by 871,000 bbl.

Ahead of today's EIA report, traders expect technical selling to continue as traders react to record high U.S. domestic production and bearish supply data. Tuesday saw West Texas Intermediate, RBOB and ULSD contracts establish new fresh eight-week lows. The nearest delivered Brent contract is expected to extend declines further, testing values not seen in more than a month.

Near the 9 a.m. ET open, NYMEX July WTI futures were off 42 cents bbl at $65.10, its lowest price in eight weeks, while the August contract also fell 41 cents to $65.05 bbl.

ICE August Brent was 35 cents down at $75.05 bbl on uncertainty regarding current and future Venezuelan and Iranian crude production, while September delivery declined 37 cents to $74.76 bbl.

NYMEX July RBOB also established fresh eight-week lows on bearish API supply data, falling more than 1 cent to $2.0916 gallon, while the July ULSD contract was nearly 0.75 cent lower at $2.1340 gallon, as unexpected supply declines prop up prices.

On the bullish side, media reports circulated early Wednesday that June production from struggling OPEC member Venezuela may be in doubt as the country might have to default on delivery for up to 1.5 million bpd of supply obligations. Reports indicate PDVSA can only deliver 694,000 bpd to export markets, forcing the firm to consider declaring force majeure, an industry term allowing contract parties to walk away from supply obligations based on circumstances it feels are out of its control.

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