Oil Futures Slump at Expiry Tuesday

Oil Lower in Wednesday Trade

Oil futures nearest to delivery on the NYMEX and Brent crude on the Intercontinental Exchange continued lower in early trade Wednesday following Tuesday's steep declines as Brent and U.S. oil products contracts expired while weekly supply data from the American Petroleum Institute was bearish.

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange (ICE) continued lower in early trade Wednesday following Tuesday's steep declines as Brent and U.S. oil products contracts expired while weekly supply data from the American Petroleum Institute (API) was bearish, showing a surprise build in U.S. crude stocks although stocks at Cushing were again drawn down.

API said U.S. crude inventories increased 5.6 million barrel (bbl), distillate stocks rose 2.89 million bbl and gasoline stocks eased 797,000 bbl for the week ended July 27. Crude stocks at the Cushing, Oklahoma, supply depot declined 930,000 bbl, more than expectations for a 500,000 bbl draw, with U.S. crude inventory expected to have declined by 3.0 million bbl. The Energy Information Administration (EIA) releases its data set at 10:30 a.m. ET.

"Prices remain under pressure with a decidedly bearish API inventory report while at the same time were seeing Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producers have increased production to the point where Kuwait production has risen to two-year highs and United Arab Emirates (UAE) production is at a one-year high, which is contributing to additional price pressure on Brent," said Andy Lipow, president of Houston-based Lipow Oil Associates.

Earlier this week, a Reuters' survey found July output from the OPEC rose 70,000 barrels per day (bpd) to a 32.64 million bpd 2018 high. Separately, Bloomberg reported Russian oil production rose to 11.22 million bpd in July from 11.1 million bpd in June.

"In the U.S., Cushing continues to approach minimum operating levels, which is causing a change in the arbitrage levels, which will reduce shipments from Cushing to the Gulf Coast [and] help to stabilize Cushing inventories," said Lipow.

He added ongoing estimates of minimum operating levels at Cushing are hard to pinpoint.

"My estimate is at 22 million bbl, while others have said it's 16 million bbl. Overall, the strong backwardation in WTI pricing in indicative of low inventories," he said.

EIA reported crude inventory at Cushing, the delivery location for the West Texas Intermediate (WTI) futures contract, stood at 23.7 million bbl on July 20, representing 30.6% of working capacity.

Analyst said the reduction at Cushing is partly the result of continuing output cuts from Suncor's downed upgrader in Alberta that, at one point, shut-in 360,000 bpd of syncrude production, and continued strong U.S. refiner crude inputs, which have averaged 16.85 million bpd cumulatively through July 20, up 281,000 bpd or 1.7% against the 2017 average.

Near 9 a.m. ET, the September NYMEX WTI contract stood $1.03 lower at $68.52 bbl, while the now prompt October ICE Brent contract was off $1.25 bbl to $72.96 bbl. September RBOB futures stood 2.45 cents lower at $2.0560 gallon, while the September ULSD contract was down 3.78 cents at $2.0996 gallon.

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

(BE)