Oil Futures Slump Into Close

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange sold off sharply into Wednesday's close, as exports from Libya and Canadian production are expected to increase. Meanwhile, a massive draw in U.S. crude stocks was linked to a plunge in imports that would quickly reverse.

In Libya, Tripoli-based National Oil Corp lifted force majeure restrictions and reopened four export ports in the eastern portion of the country. Exports from the terminals would "return to normal in the next few hours," NOC told Reuters.

The Organization of the Petroleum Exporting Countries in their Monthly Oil Market Report, released this morning reported Libyan crude production in June at 708,000 bpd, down 254,000 bpd from May amid a violent resurgence in a civil war in the North African country.

"Today's [Wednesday's] futures slump seems to be driven mostly by Libyan production and Canadian production coming back online, despite the bullish inventory numbers from the EIA," said Dominick A. Chirichella, director of risk management with EMI-DTN.

News of renewed Libyan exports contributed to a 7.4% plunge in ICE September Brent crude futures that dropped to a nearly three-week spot low of $73.04 bbl. September Brent crude settled down $5.46 at $73.40 bbl.

Analysts said Canadian production should begin to increase over the next several weeks following the June 20 shutdown of an upgrader that shut-in 360,000 bpd of syncrude. Suncor, the majority owner of the upgrader in Alberta, has planned to ramp up output in phases, with full production expected to return by mid-September.

U.S. commercial crude oil stocks declined a steep 12.6 million bbl during the week ended July 6, the Energy Information Administration reported Wednesday, with the decline due to a plunge in U.S. crude imports of 1.624 million bpd to 7.431 million bpd.

Despite the crude draw, NYMEX August West Texas Intermediate futures settled down $3.73 at $70.38 bbl, holding above psychological support at $70 bbl with a $70.02 two-week low.

"We saw a big reduction in crude imports which typically correct themselves in a few weeks may, and that has contributed to the large draw in crude," said Chirichella. "There's a lot more bearish tenor now with Trump pushing crude and supplies coming back online."

U.S. President Donald Trump has pressed Saudi Arabia to increase crude production to counter supply losses in Venezuela, and offset an expected decline in Iranian exports as U.S. sanctions take hold in November.

Saudi Arabia reported a 459,000 bpd production increase in June from May to 10.489 million bpd, according to OPEC's MOMR, with the Saudis expected to lift output to a record high near 11.0 million bpd in July.

A drop in implied demand for products also weighed on RBOB and ULSD futures, with EIA reporting total oil products supplied to market down 1.364 million bpd to 19.908 million bpd five-week low.

NYMEX August RBOB gasoline settled down 9.89 cents at $2.0614 gallon, edging off a decline to a two-week spot low of $2.0521 gallon. NYMEX August ULSD futures dropped 12.1 cents to $2.1008 gallon, paring a loss to a $2.0944 gallon two-week spot low.

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