Crude Build Knocks Oil Futures Lower

CRANBURY, N.J. (DTN) -- Oil futures on the New York Mercantile Exchange and the world crude benchmark Brent contract on the Intercontinental Exchange deepened a midweek selloff Thursday, tumbling on a large 6.0 million barrel (bbl) crude build and concern over global demand growth amid another rout in equities spurred by worry of higher interest rates, emerging economies and the effect high oil prices would have on world economic growth.

The Dow Jones Industrial Average was down near 450 points this afternoon after erasing 831.83 points Wednesday, with the U.S. dollar weakening to a two-week low.

West Texas Intermediate and Brent futures settled at three-week spot lows, the ULSD contract at a two-week low, while RBOB futures ended at a seven-month low on the spot continuous chart.

The Energy Information Administration on Wednesday and the Organization of the Petroleum Exporting Countries on Thursday morning revised lower their forecast for global oil demand from one-month prior, while the International Energy Agency's executive director, Fatih Birol, warned in an interview earlier this week that high oil prices entered a danger zone that would affect demand. The IEA will update its monthly outlook Friday morning.

Domestically, Hurricane Michael, which was just shy of reaching Category 5 status ahead of its landfall at Panama City, Florida, Wednesday afternoon, has caused extensive damage in the Florida Panhandle and in Georgia that will slow gasoline demand in the region.

RBOB futures were already under pressure on bulging stock levels, with the EIA reporting a 1.0 million bbl build that lifted inventory to a 236.2 million bbl three-month high during the week-ended Oct. 5, while 14.7 million bbl or 6.7% above the comparable year-ago period. Gasoline supply is at a record high for this time of year, with the bearishness for RBOB futures further illustrated in days of forward supply. EIA reported a 0.5-day increase to a 25.7-day six-month high for last week that is 2.2 days more than year prior and 1.3 days above the five-year average.

In sharp contrast, distillate supply was drawn down for the third week straight, down 2.7 million bbl to a 133.5 million bbl five-week low while implied demand surged 752,000 barrels per day (bpd) to a 10-month high, with the weekly demand rate the second highest for 2018. Distillate forward supply tumbled 3.4 days to a 31.5-day two-month low.

The Bureau of Safety and Environmental Enforcement this afternoon said 680,107 bpd of crude production and 744 MMcf/d of natural gas output in the Gulf of Mexico remained shut-in this morning because of Hurricane Michael. Colonial Pipeline said some fuel terminals in Georgia weren't receiving new supply because of power outages as a result of the massive hurricane.

NYMEX November WTI futures settled down $2.20 at $70.97 bbl, and ICE December Brent ended $2.83 lower at $80.26 bbl. NYMEX November ULSD futures were down 6.27 cents with a $2.3322 gallon settlement, and November RBOB futures tumbled 8.77 cents to $1.9327 gallon -- the lowest settlement on the spot continuous chart since March 19.

Brian L. Milne can be reached at brian.milne@dtn.com

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