Oil Futures End Lower on Demand Concern

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 on a confluence of factors, including a report from the Organization of the Petroleum Exporting Countries showing slight reductions in global oil demand for this year and next, and concern that Turkey's ongoing currency devaluation could spread to Europe and crimp global oil demand while U.S. supply is seen steadying.

"I think there's a combination of factors leading Monday's futures lower," said Phil Flynn, senior market analysts with Chicago-based Price Futures Group. "Traders are pointing to Turkey's impact on the global economy, also a report from OPEC lowering their demand forecast for 2018 and 2019 as well as a report from Genscape showing supplies at Cushing, increased by 892,499 bbl through Friday."

Supply at Cushing, the delivery location for NYMEX West Texas Intermediate futures, have declined for 12 consecutive weeks through Aug. 3, according to the latest data from the Energy Information Administration, down 15.4 million bbl from mid-May to a minimum operating level at 21.8 million bbl—the lowest stock level at the key hub since November 2014.

Earlier in the session, OPEC released its Monthly Oil Market Report that revised lower by 20,000 bpd its 2018 and 2019 global oil outlook from its forecast in July because of weaker-than-estimated second quarter demand from Latin America and the Middle East. OPEC expects year-on-year demand growth at 1.64 million bpd in 2018 and at 1.43 million bpd in 2019.

OPEC also revised higher by 73,000 bpd its forecast for non-OPEC supply for 2018 to 59.62 million bpd for annual growth of 2.08 million bpd, with year-on-year non-OPEC supply growth for 2019 projected at 2.13 million bpd to 61.75 million bpd on higher-than-expected oil production from China.

In its monthly outlook, OPEC also showed crude output increased 40,700 bpd to 32.323 million bpd in July as output gains from Kuwait, Nigeria, and the United Arab Emirates were offset by declines from Libya, Saudi Arabia and Venezuela. Saudi Arabian crude output was estimated by secondary sources 52,800 bpd less in July to 10.387 million bpd, while Saudi Arabia reported output off a more sizable 200,500 bpd to 10.288 million bpd.

The freefall in Turkey's currency, the lira, has also prompted selling in oil futures on worry over contagion across European economies and what the currency devaluations means for growth in other emerging markets. Since the beginning of this year, the lira has lost 45% of its value in 2018 year-to-date.

At settlement, NYMEX WTI futures for September delivery was down 43 cents bbl at $67.20 bbl, trimming a decline to a $65.71 fresh eight-week low on the spot continuous chart. ICE October Brent crude settled down 20 cents at $72.61 bbl, paring a decline to a four-month spot low of $71.04 bbl.

September RBOB futures settled down 2.45 cents to $2.0147 gallon after trading at a $1.98 four-month low on the spot continuation chart. September ULSD futures eased 0.27 cents with a $2.1370-gallon settlement.

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