Oil Ends Tuesday Down

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled lower Tuesday, reversing a portion of Monday's advances, as traders expect the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producing nations partnered with the cartel to lean toward larger production increases than some earlier predicted when the oil interests meet Friday at the OPEC biannual meeting in Vienna.

Trader selling increased in earnest amid media reports from OPEC's Economic Commission signaling production increases might lean larger because the supply increase could be easily absorbed by the market amid expectations for a strong outlook for the second half of 2018.

Traders said futures were also lower despite early calls by oil experts suggesting drawdowns in domestic crude oil and gasoline stocks and a moderate build in middle distillate storage levels when a weekly supply report is released from the American Petroleum Institute. Traders will be closely watching Tuesday's 4:30 PM ET API report, as well as the 10:30 AM ET Wednesday weekly supply report from the U.S. Energy Information Administration for additional price clues.

As the Friday OPEC meeting looms ever larger, traders face the prospects of a two-phased 500,000 bpd approach reported to be considered by OPEC leader Saudi Arabia versus a pledge from non-OPEC leader Russia for a larger 1.5 million bpd increase. Most agree supplies could remain tight and prices subject to wild price fluctuations even after the OPEC increase amid flagging output from OPEC members Venezuela and Iran.

Contention at the OPEC meeting also is expected to be high as OPEC members Venezuela, Iran and Iraq reject the easing of production cuts, arguing Saudi Arabia and Russia would be the main beneficiaries of production increases because they are most capable of ramping up extra spare production capacity.

OPEC and a non-OPEC contingent led by Russia agreed in late 2016 to reduce their combined production 1.8 million bpd from the October 2016 output rate that took effect Jan. 1, 2017, and was set to run through year's end. Market bulls contend expected OPEC supply increases could largely be offset by continued supply disruptions with production declines estimated at nearly 1.6 million bpd later this year as a result of Venezuela's continued economic collapse and the re-imposition of oil sanctions on Iran levied by the Trump administration after the U.S. pullout from the Iran nuclear deal in May.

Iran sanctions alone, could add about 1.2 million bpd of supply disruptions to the market according to recent estimates from Paris-based oil watchdog group International Energy Agency, while recent OPEC data reveals Venezuela production down 353,000 bpd to 1.392 million bpd in 2018 through May and still seen declining.

While prices could easily spike as a result of further supply disruptions, futures values continue to be pressured near term by record U.S. oil output, recently estimated by the EIA at a fresh 10.9 million bpd high.

At the 2:30 PM ET close, NYMEX July West Texas Intermediate futures settled 78 cents lower at $65.07, ahead of Wednesday's July contract expiration, while August WTI futures fell 79 cents to $64.90 bbl. ICE August Brent fell 26 cents to $75.08 at settlement, while the September contract declined 30 cents to $74.64 bbl.

NYMEX July RBOB futures settled 1.67 cents down at $2.0379 gallon, while the August RBOB contract fell 1.69 cents at settlement to $2.0271 gallon. July ULSD declined nearly a penny to $2.1218 gallon, while the August USLD contract settled 0.99 cents lower at $2.1238 gallon.