Oil Mixed in Thursday Trade

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were mixed in early trade Thursday following sharp futures declines Wednesday spurred by bearish supply data from the Energy Information Administration.

The Wednesday sell-off saw West Texas Intermediate crude and international Brent establish new multi-week and multi-month lows as traders sold contracts amid EIA data showing less-than expected declines in U.S. commercial crude inventories, the first increase in gasoline inventories in six weeks and increases in both distillate supply and demand.

September WTI dropped $2.23 to $66.94 bbl, finishing at its lowest settlement on the spot continuous chart since June 20, while Brent crude slumped $2.37 bbl to $72.28 bbl, its lowest on the chart in more than three weeks. RBOB futures for September delivery slumped 8.45 cents to $2.0195 gallon, its lowest settlement since July 16, while September ULSD sunk 5.34 cents to $2.1157 gallon, its lowest settlement in nearly a week.

EIA's reported gasoline supply build was supported by a decline in implied motor gasoline demand, which dropped 532,000 barrels per day (bpd) to 9.346 million bpd. Analysts said lower gasoline demand is expected as the summer driving season begins to wind down and the focus at refineries shifts to producing heating oil for the winter. Refinery runs were reported up 0.5% to 96.6% of capacity, while gasoline output slipped 570,000 bpd to 9.913 million bpd, EIA said.

Commercial crude inventories declined a less-than-expected 1.4 million barrels (bbl) for the week ended Aug. 3, while analysts estimated declines of 3.3 million bbl. Cushing, Oklahoma stocks, the basis for the NYMEX WTI crude contract fell for a 12th week to 21.803 million bbl, the lowest inventory level since November 2014. Analysts said Cushing stocks which are reported at minimum operating levels between 16 million and 22 million bbl, have been drawn down because refiners saw little value in storing supplies at Cushing amid high gasoline demand and low refining margins.

With Tuesday's start of economic sanctions on Iran, cutting its ability to transact in U.S. dollar denominations, trader concerns remain heightened even as China announced it will impose additional 25% tariffs on a further $16 billion in U.S. goods including fuel and steel products as well as autos and medical equipment, though oil will remain exempt for now. China announced recently it would not abide by U.S. demands for countries to slash takes of Iranian crude come November when new U.S. oil sanctions begin although it agreed it would not raise oil imports.

Analysts estimate oil sanctions on Iran could cut exports from the third largest producer in the Organization of Petroleum Exporting Countries by between 500,000 bpd and 1 million bpd. Recent OPEC data shows Iran's June oil output at 3.799 million bpd, off 2.1 million bpd or 0.31% from 2017's 3.811 million bpd production level, while market watchers estimate Iran's July exports were between 2.7 million bpd and 3.0 million bpd. New sanctions follow a May decision by the Trump administration to withdraw from the 2015 Iran nuclear accord.

Near 9 a.m. ET, the September NYMEX WTI contract stood 3.0 cents higher at $66.97 bbl, while the October ICE Brent contract was up 21 cents to $72.49 bbl. September RBOB futures stood marginally lower at $2.0104 gallon while the September ULSD contract was up marginally to $2.1209 gallon.

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