Oil Futures Settle Mixed on EIA Data

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 mixed Wednesday amid bullish data for crude oil and bearish gasoline and distillate inventory builds as reported in Wednesday's Energy Information Administration weekly supply report.

The report boosted West Texas Intermediate crude values to four-day highs ahead of Friday's much-anticipated meeting of the Organization of the Petroleum Exporting Counties and their 10-nation non-OPEC counterparts in Vienna.

Today's 1.8% jump in WTI crude futures values follows a much larger-than-expected EIA-reported decline in commercial crude oil inventories as market participants covered short positions ahead of Wednesday's expiration of the July WTI futures contract. Traders expect WTI activity to remain spirited as traders shift focus to August contract requirements ahead of the OPEC meeting.

EIA said commercial crude oil inventories slumped 5.9 million barrels (bbl) to 426.5 million bbl during the week-ended June 15, falling 10.057 million bbl over the past two weeks and down 16.2% from the same week in 2017.

The draw in crude supplies reflected an increase in U.S. refinery utilization to 96.7% of capacity, EIA said, with refiners increasing crude oil inputs by 196,000 barrels per day (bpd) on the week to 17.701 million bpd as many ramped up gasoline production with the summer driving season in full swing.

Wednesday's WTI price jump follows EIA data showing U.S. crude production unchanged on the week at a record 10.9 million bpd.

Gasoline stocks increased 3.3 million bbl to 240.0 million bbl during the survey period, reversing the prior week's 2.3 million bbl decline, as demand slumped 553,000 bpd to 9.326 million bpd. At the same time, imports rose 26,000 bpd to 850,000 bpd while output dropped 352,000 bpd to 10.099 million bpd during the survey period.

Distillate stocks, while off 23% from year-ago levels, rose 2.7 million bbl to 117.4 million bbl, a 2.4% increase on the week and a reversal of the prior week's 2.1 million bpd draw.

Following weekly supply data, trader attention is refocusing on Friday's OPEC meeting, with estimates on the amounts of OPEC production increases ranging from 300,000 bpd to 600,000 bpd, sharply lower than earlier discussion of a 1.5 million bpd production boost. The expected supply increase comes amid criticism from Iran and Venezuela who want to maintain the output cuts at current levels, which are scheduled to run through year-end.

Contention remains high with OPEC members Iran and Venezuela because Saudi Arabia and Russia, who leads the non-OPEC contingent, have the lion's share of spare production capacity, and are seen benefiting the most from even a smaller production increase. The two nations agreed with OPEC and participating non-OPEC countries to cut 1.8 million bpd of production from October 2016 output rates.

Analysts say price gyrations, especially given a lower OPEC supply boost, could be large because nearly 1.6 million bpd of production could be unavailable in the market later this year as a result of economic chaos effecting Venezuela's oil export infrastructure and the re-imposition of oil-related sanctions in May by the Trump administration on Iran when the U.S. pulled out of the Iranian nuclear deal.

During the first five months of 2018, OPEC data reveals Venezuela production down 353,000 bpd to 1.392 million bpd. Analysts expect production from Venezuela to again decline in June, with output likely seen sliding to 1.0 million bpd in the coming months, especially if recent reports of upgrader closures by PDVSA are true. Reports indicate PDVSA won't be able to process heavy oil, which means it may have to curtail or shut down operations at its oil fields.

As the OPEC meeting looms, traders concern is growing given recent media reports indicating attacks in Libya have shut down more than one-third of the country's output, further adding to global supply concerns. A later Reuters' news story confirmed the collapse of an estimated 400,000 bbl storage tank.

Reuters News indicated Iran signaled earlier today it might allow a small increase in OPEC oil output, letting some OPEC members that had over delivered on cuts to return to compliance with quotas. That would effectively mean a more modest boost from producers such as Saudi Arabia that they say have been cutting more deeply than planned despite production outages in Venezuela and Libya.

Markets also continue to monitor a developing potential trade war with China, following U.S. President Donald Trump's recent threat to impose an additional $200 billion in export tariffs on top of earlier announced $50 billion tariffs on Chinese exports. In retaliation, China has threatened to levy 25% tariffs on U.S. imports, which more importantly, could mean duties on U.S. crude oil.

A 25% tariff on U.S. crude oil imports would make U.S. crude uncompetitive in China versus other supplies, though analyst think the levies would be largely ineffective as U.S. crude would likely be diverted to other markets. Analysts fear the tariffs could lead to a sharp drop-off in Chinese purchases of U.S. crude, which have boomed in the last two years with the business now valued around $1 billion per month.

At the 2:30 p.m. EDT close, NYMEX July West Texas Intermediate futures expired $1.15 higher at $66.22, while August WTI futures rose 81 cents to $65.71 bbl.

ICE August Brent fell 34 cents to $74.74 at settlement, while the September contract declined 31 cents per bbl to $74.33 bbl.

NYMEX July RBOB futures settled down 1.44 cents to $2.0235 gallon, while the August RBOB contract fell 1.59 cents at settlement to $2.0112 gallon.

July ULSD declined 1.47 cents to $2.1071 gallon, while the August USLD contract settled 1.31 cents per gallon lower at $2.1107.

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