Oil Futures Slump at Expiry Tuesday

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchanged settled sharply lower Tuesday ahead of weekly supply data from the American Petroleum Institute expected at 4:30 PM ET. September West Texas Intermediate crude contract fell nearly $1.37 or 2.1% at $68.76 bbl, reversing down from Monday's $70.43 six-session high.

ICE September Brent futures expired down 72 cents bbl to $74.25 bbl, with October Brent settling down $1.34 at $74.21 bbl. NYMEX August RBOB futures expired down 3.12 cents at $2.1291 gallon, with the September contract settling at a 4.86 cents discount to August at $2.0805 gallon. Both the August and September ULSD contracts expired down 3.91 cents at $2.1319 and $2.1374 gallon, respectively.

Tuesday's profit taking losses follows volatile trade in July spurred by strong demand and declining inventory in the United States and lost production from Venezuela, Libya, Canada and Iran that was offset by higher production from Saudi Arabia, Kuwait, Russia and the United States.

On Monday, Reuters found July output from the Organization of the Petroleum Exporting Countries rose to 32.64 million bpd up 70,000 bpd from June to a 2018 high with the addition of Congo's production, which joined OPEC last month. Bloomberg reports Russian oil production rose to 11.22 million bpd in July from 11.1 million bpd in June, while output from Kazakhstan rose to 1.91 million bpd this month from 1.897 million bpd in June.

Domestically, a Bloomberg survey expects U.S. crude supply to have been drawn down 3.0 million bbl during the week ended July 27, with 500,000 bbl of the draw coming from Cushing, Oklahoma.

Traders are keen to see if Tuesday's API report and Wednesday's 10:30 AM ET weekly supply report from the Energy Information Administration would show continued declines at Cushing, where inventories showed a tenth weekly supply drawdown for the week ended July 20, rendering stocks at minimum supply levels of 23.7 million bbl or 30.3% of working capacity.

While the U.S. Federal Open Markets Committee meets Tuesday and Wednesday, most analysts don't expect any change in the current 2.0% U.S. Federal Funds rate, but do expect a 25 basis point increase when the Fed meets in September.

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