Oil Futures Slide as Data Disappoints

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and the Brent contract on the Intercontinental Exchange settled the midweek session lower following weekly federal data showing an unexpected build in U.S. commercial crude inventory. Meanwhile the April RBOB contract plunged on slowing gasoline demand against year ago.

Nymex April RBOB futures lost 6.02 cents with a $1.8955 gallon settlement, with the sharp retreat in the gasoline contract following nine consecutive sessions with a gain that lifted the spot-month futures contract to a $1.9807 better-than five-month high. The selloff comes ahead of the April contract's expiration at Friday's close and after April delivery moved to a 5 cents premium against May delivery on Tuesday, the widest front-to-second month spread since the end of the 2018 gasoline season on the final day of August. April RBOB futures reversed ahead of the $2-gallon benchmark, as implied demand reported by the Energy Information Administration shows a slowdown against year ago as retail prices climb. The April contract sharply narrowed its premium position against May in the backwardated market to 2.22 cents gallon, with traders appearing unwilling to challenge the psychological benchmark.

EIA reported implied gasoline demand dropped 285,000 barrels per day (bpd) on the week to 9.124 million bpd, while demand over the four weeks ended March 22 at 9.184 million bpd trailed the comparable year-ago pace by 179,000 bpd or 1.9%.

EIA reported gasoline stocks declined a more-than-expected 2.9 million barrels (bbl) to a 238.6 million bbl 13-week low during the week ended March 22, and are down 1 million bbl against year ago. However, the draw was less than a 3.47 million bbl decline reported late Tuesday by the American Petroleum Institute. The same was true for distillate fuels, with a more-than-estimated 2.1 million bbl decline reported midmorning by the EIA dwarfed by Tuesday's reported 4.28 million bbl draw by API.

Nymex April ULSD futures settled down 0.93 cents at $1.9806 gallon, maintaining a modest discount to the May contract ahead of expiration Friday afternoon.

Nymex May West Texas Intermediate futures settled down $0.53 at $59.41 bbl, while the ICE May Brent contract ended the session with a modest $0.14 decline at $67.83 bbl. May Brent expires Friday afternoon, with the June contract settling at a $0.59 discount to May in the backwardated market.

Commercial crude stocks in the United States increased 2.8 million bbl during the week profiled that contradicted market expectations for a drawdown in supply, with the build due to a sharp drop in crude inputs at Gulf Coast refineries with a helping hand from lost domestic demand in California amid a host of refinery disruptions.

Nationally, U.S. refinery crude inputs tumbled 367,000 barrels per day (bpd) to a 15.831 million bpd five-week low spurred by a 294,000 bpd drop in crude inputs in the Gulf Coast PADD 3 to an 8.354 million bpd better-than 13-month low for the weekly reporting period. Crude inputs along the West Coast PADD V declined 70,000 bpd to a 2.375 million bpd six-week low.

The partial closure of the Houston Ship Channel follows a March 17 fire at the Deer Park petrochemical facility in Texas, where burned storage tanks released benzene into the critical waterway. The closure delayed imports of crude oil to reach refineries in a timely manner, prompting some refiners to reduce run rates at their plants.

U.S. President Donald Trump met with Fabiana Rosales, the wife of Venezuelan interim President Juan Guaido, Wednesday in the White House where he told Russia "to get out' of Venezuela. Russia supports Nicolas Maduro as president of the South American country, where Moscow has lent billions of dollars, with Maduro sworn into a second term as president in January after fraudulent elections in 2018. Moscow sent two planes with 100 soldiers to Venezuela on Sunday.

Venezuela, a founding member of the Organization of the Petroleum Exporting Countries, has seen its crude production plummet following more than a decade of mismanagement and corruption, with exports further choked off by U.S. sanctions that took effect in late January. A massive power outage on Sunday just 10 days following a previous outage has further cut crude production and exports, with reports indicating state oil company PDVSA has been unable to restart critical upgraders for its heavy oil and resume operations at its primary export port.

The U.S. dollar strengthened to a 1-1/2 week high Wednesday as the U.S. economy outperforms European counterparts and as China contends with slowing growth. Uncertainty over Brexit continued, as Parliament takes over the debate on leaving the European Union with votes on multiple options, including a second referendum on the historical stay or leave 2016 vote. The EU agreed to delay the divorce date scheduled for Friday (3/29) as Britain attempts to reach a Parliamentary majority for a deal with the EU, while embattled Prime Minster Theresa Mays agreed to step down if she can push through her deal, which would be the third attempt.

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


Brian Milne