Oil Futures Fall

Oil Futures Fall

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 Monday following agreements to hike oil production by the Organization of the Petroleum Exporting Countries and its 10-nation non-OPEC counterparts reached Friday and Saturday, which countered lost supply from Canada amid an expected more than one-month shut down of an oil sands upgrader.

At their meetings, OPEC and non-OPEC said effective July 1 they would comply with production cuts of 1.8 million bpd agreed to in late 2016, with the reduction in output about 1.0 million bpd more than the two-year agreement with a term through end year. During a technical meeting ahead of the meetings, it was determined that OPEC had over complied with production agreements by 52% and non-OPEC members by 47% in May. That represents an OPEC output boost of about 600,000 bpd and non-OPEC production increase of roughly 262,260 bpd.

The over compliance is largely due to involuntary production declines by several participating members, including Venezuela and Angola, while Libyan output was recently slashed amid a renewed struggle between rival militias for control of the north African nation. Potential lost production later this year by Iran as re-imposed U.S. sanctions threaten exports was also a concern, with Iranian oil exports reduced by 1.2 million bpd during previous sanctions that ended in 2015.

Of those supply challenges, the most notable is the collapse in Venezuela's production as their economy continues to shrink rapidly, and recent asset seizures by ConocoPhillips accelerates the decline rate. Analysts expect Venezuelan output to drift below 1.0 million bpd later this year, compared with May at 1.392 million bpd, 1.745 million bpd in December 2017, and 1.955 million bpd in June 2017. Under the OPEC agreement, Venezuela's production quota is 1.972 million bpd.

OPEC and non-OPEC members are already considering an oil output deal for 2019, according to Russia's energy minister, Alexander Novak added, "with the view to sign it at the ministerial meeting at the end of this year." OPEC holds their next biannual meeting on Nov. 30.

The refurbished agreements countered lost supply from Canada, where a 360,000 bpd upgrader near Fort McMurray, Alberta, is expected to remain offline through the end of July following a transformer outage on June 20. Analysts said the outage is freeing up ongoing pipeline capacity constraints in Canada and reducing the previous large discounts for delivered Canadian crudes.

NYMEX August WTI futures settled 50cts bbl lower at $68.08, while the September contract gave back 59cts to settle at $67.04 bbl.

ICE August Brent crude declined 82cts bbl at settlement to $74.73 bbl, while the September contract gave up 77cts to $74.55 bbl at settlement.

The spread between WTI crude and Brent crude, a measure of U.S. oil export profitability, narrowed to a $6.65 bbl Brent premium at settlement, the lowest price since May 11.

NYMEX July RBOB futures settled down 1.9cts to $2.0515 gallon, while the August RBOB contract fell 2.0cts to $2.03390 gallon.

July ULSD futures declined 2.5cts to $2.1004 gallon, while the August USLD contract settled 2.51cts lower at $2.1042 gallon.

NYMEX July RBOB and ULSD futures expire at Friday's (6/29) close of business alongside the expiration of ICE August Brent.

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