Oil Lower in Wednesday Trade

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were mostly lower in early trading Wednesday, erasing overnight gains ahead of weekly federal supply data and the December Brent and November oil products expirations Wednesday afternoon.

Oil futures are down in October, with West Texas Intermediate and Brent down more than $5 barrel (bbl) from the end of September, while RBOB futures are nearly 29 cents gallon lower. ULSD futures, the lone contract holding onto gains in early trading Wednesday, is down nearly 5 cents gallon in October.

Oil futures have come under heavy selling pressure in October after WTI and Brent crude opened the fourth quarter trading at four-year highs, rallying on concern over supply tightness amid U.S. sanctions on Iranian oil exports that take effect early next week. Speculators have walked away from that trade, liquidating long positions throughout October.

High crude prices earlier this month joined by concerns over the sustainability of world economic growth prompted downside revisions to global oil demand expectations, with global trader Vitol the latest to reassess world consumption projections to the downside.

The International Energy Agency in October revised its world oil demand expectations down about 100,000 barrels per day (bpd) from month prior, but still projects global oil demand to reach a record high 100.2 million bpd in the current fourth quarter. World oil consumption peaks in the fourth quarter and is weakest in the first quarter, with IEA seeing a drop down in demand to 98.9 million bpd during the first three months of 2019.

A slowing Chinese economy, the world's second largest, has been one of the drivers in prompting a reassessment of oil demand expectations. Late Tuesday, the Caixin China General Manufacturing PMI was released showing a drop from 50.6 in August to a 16-month low of 50 in September, and below market consensus of 50.5. The data showed production and new orders slowed, and export sales dropped to a low last seen in early 2016, while employment fell the most in 14 months.

And while growth in business orders in the United States was a modest 0.8% in the third quarter according to the Bureau of Economic Analysis, the labor market is strong in the United States. Growth in small business activity has been hampered by a lack of skilled workers, with reports indicating some small businesses are turning down opportunities to expand because they don't have enough qualified employees.

Wednesday morning, private payroll services company ADP reported a 227,000 increase in U.S. nonfarm private sector employment for October, the largest monthly gain in employment since February, and more than the 218,000 new jobs in September.

The ADP report comes ahead of the Department of Labor's nonfarm employment report set for release Friday morning, with the Labor Department last month reporting the unemployment rate fell to 3.7%, the lowest it has been since December 1969.

The U.S. dollar rallied on the ADP report, with the currency trading at a 16-month high.

At 10:30 a.m. ET, the Energy Information Administration will report supply estimates for the U.S. oil industry for the week ended Oct. 26, which follows the late Tuesday release of weekly estimates from the American Petroleum Institute.

API reported a 5.69 million bbl build in commercial crude supply during the week ended Oct. 26 that was well above market expectations for a 2.9 million bbl increase, and would be the sixth consecutive weekly build if confirmed by the EIA. The EIA reported commercial crude stocks stood at a 422.8 million bbl four-month high on Oct. 19.

API reported a 3.46 million bbl decline in gasoline inventories for the week profiled that was more than market expectations for a 1.7 million bbl draw. Distillate stocks fell a steep 3.08 million compared with estimates for a drop of 1.9 million bbl.

At last look, Nymex December WTI futures were down $0.27 at $65.91 bbl. ICE December Brent was down $0.39 at $75.52 bbl, with January at a $0.10 premium to the expiring contract.

Nymex November ULSD futures were up 0.22 cents at $2.2620 gallon, with December delivery at parity. Nymex November RBOB futures were down 2.62 cents at $1.7797 gallon ahead of expiration, with the December delivery at a 30-cent discount to the expiring contract.

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

(BE)

Copyright 2018 DTN/The Progressive Farmer. All rights reserved.