Oil Futures Down on Demand Worries

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent futures on the Intercontinental Exchange ended down after testing recent lows as the market again came under pressure from concern over demand amid a slowing world economy, with global oil demand weakest during the first quarter.

A U.S./China trade dispute, strengthening U.S. dollar, climbing interest rates, and the unwinding of monetary stimulus policies, have converged to dent the outlook for world economic growth. And while the U.S. economy remains strong, it's slowing down too, with the second estimate for third quarter gross domestic product set for release Wednesday morning expected to show annualized growth of 3.5%, down from 4.2% in the second quarter. Recent estimates for the annualized fourth quarter GDP growth rate of 2.7% suggest the slowdown continues through year-end.

Tuesday morning, the Conference Board found consumer confidence in November at a lower-than-expected 135.7, down from 137.9. While the reading is lower than market consensus for 136.5, consumers remain confident, suggesting consumer spending would still drive GDP growth even as businesses cap investment.

The U.S. dollar rallied to a two-week high in index trading, nearing the 17-month high traded in mid-November. The stronger dollar pressures West Texas Intermediate since oil trades internationally in dollar denominations.

Reports indicate U.S. President Donald Trump will dine with China President Xi Jinping on Saturday (12/1) in Argentina at the G-20 meeting when their trade differences are expected to be discussed. Trump again laid down the consequences of the talks, saying Monday that he saw no reason to delay tariffs on Chinese imports set for January if a deal can't be reached with China. Larry Kudlow, U.S. National Economic Council director, said the White House is communicating with China's government "at all levels" ahead of the weekend meeting.

Russian Oil Minister Alexander Novak and Saudi Arabian Oil Minister Khalid al-Falih are also said to meet at the G-20 meeting later this week when they are expected to discuss output cuts amid sharply higher world oil production, while oil demand is set to decline in early 2019. Their meeting comes ahead of the Dec. 6 biannual Organization of the Petroleum Exporting Countries gathering in Vienna, where they will be joined by 10 non-OPEC oil producers led by Russia.

The Saudis had proposed a 1.4 million barrels per day (bpd) cut to be made by OPEC+, but Russia disagreed with the size of the cut, while Trump blasted Saudi Arabia over the proposal, demanding lower oil prices. The Saudis need Trump's support amid the killing of a prominent journalist at their consulate in Turkey on Oct. 2 that has earned the kingdom worldwide condemnation.

Earlier this month, the Saudis announced a unilateral cut of 500,000 bpd that would take effect in December and are expected to cut their output by 1.0 million bpd that aligns with their 2016 production agreement. November crude production in the kingdom reached a record high near 11.0 million bpd earlier this month, an output rate in line with previous comments from al-Falih aimed at shoring up global oil supply as U.S. sanctions on Iranian exports took hold on Nov. 5. U.S. waivers allowing eight countries to procure Iranian oil for 180 days without threat of financial punishment quickly realigned the supply-demand disposition.

The American Petroleum Institute it set to release supply data for the week-ended Nov. 23 shortly, with the Energy Information Administration set to release its weekly statistical report at 10:30 a.m. ET Wednesday. The market expects commercial crude stocks to have fallen by 1.5 million barrels (bbl), gasoline inventory to have increased by 1.5 million bbl and distillate stocks to have gained 500,000 bbl last week.

Nymex January WTI futures settled down $0.07 at $51.58 bbl, paring a decline to $50.30 bbl. ICE January Brent settled down $0.27 at $60.21 bbl, with the February contract holding a $0.19 premium over January delivery.

Nymex December ULSD futures traded at a fresh eight-month spot low at $1.8600 gallon before settling down 0.7 cents at $1.8860 gallon, with the January contract ending at a 0.36 cents discount to the December contract. December RBOB futures settled down 2.18 cents at $1.4208 gallon with the January contract ending the session at a 1.68 cents discount to December.

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

(CZ)

Brian Milne