Oil Futures Down on Slowing Economy

Oil Futures Down on Slowing Economy

WASHINGTON (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Intercontinental Exchange Brent futures are lower Monday morning, although holding within Friday's trade ranges, as concerns over signs of an intensifying economic slowdown were countered by declining crude inventories and drilling rigs in the United States amid a tightening global oil market.

In midmorning trading, West Texas Intermediate May contract slid $0.68 to trade at $58.36 barrels (bbl), while ICE Brent May futures moved $0.39 down to $66.64. NYMEX ULSD April contract fell 0.90 cent to $1.9569 gallon, while RBOB April futures lost 2.34 cents to $1.9025 gallon.

Friday afternoon, the drumbeat of bearish economic figures from Eurozone and the United States unsettled the bond and equities markets, quickly ripping through commodities. While the slowdown was widely expected, the pace of the drop in industrial activity unnerved many investors, as factory output in Europe fell at the fastest pace in six years, as a measure for U.S. manufacturing slid to its slowest in almost two years. The latest signs of trouble drove the yield on 10-year Treasury notes below that of three-month bills for the first time since 2007, which created a situation known as an "inverted" yield curve and has preceded every U.S. recession since 1975. Markets view the inverted curve as a reliable predictor of downturns.

Monday morning, U.S. indexes were mixed, with the Dow Jones Industrial Average reversing early losses, up slightly near 25,523.38, while the S&P 500 Index softened, paring a decline to 2,791, with both benchmarks having suffered their biggest drop during the previous session since Jan. 2.

On the back of sluggish economic data, the U.S. dollar has softened 0.188% to 95.97 in index trading Monday morning.

Oil futures continue to be supported by the declining number of oil rigs in the United States, which fell to lowest level in almost a year last week, indicating a well-established downtrend in drilling activity in the first quarter. Baker Hughes data reported U.S. drilling rigs dipped nine to 824, down 61 year to date after falling for five consecutive weeks. While the rig count has fallen sharply since the start of the year, U.S. commercial crude inventories plunged to the lowest level since January to 439.5 million bbl in the week ended March 15, according to Energy Information Administration.

Saudi Arabia, the de facto head of the Organization of the Petroleum Exporting Countries, has systematically targeted oil exports to the United States in an effort to lower commercial crude inventories, which are currently 2% below the five-year average for this time of the year.

Liubov Georges can be reached at liubov.georges@dtn.com