Oil Futures Plunge on Expected Crude Build, Uncertainty

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- After trading in tight ranges earlier in the session, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange fell sharply in afternoon trade Tuesday, with the nearby delivery month West Texas Intimidate contract sliding below $40 barrel (bbl) on an expected build in U.S. commercial crude oil inventories during the week ended Sept. 25 and growing uncertainty over the demand outlook for the fourth quarter.

With one business day left in the third quarter, oil futures sold off hard and equities drifted lower as investors braced for the first of the three U.S. presidential debates, which could set the tone for the markets for the next 35 days until the Nov. 3 election. On Monday, House Democrats unveiled a $2.2 trillion relief package that is likely to be a bargaining tool, initially boosting sentiment across markets. Wire services reported the proposal would restore an additional $600 weekly jobless benefits from the federal government in addition to state unemployment insurance and provide additional funding for restaurants and airlines. The amount of the bill is still above what Senate Republicans have said they would accept, dashing hope for new stimulus ahead of the election.

Inventory data from the American Petroleum Institute due out shortly is expected to show crude oil stocks to have increased by about 1.7 million bbl during the week ended Sept. 25 after falling 1.6 million bbl in the week prior. Refinery runs are expected to have decreased 0.4%, while traders expect gasoline supplies to have been drawn down 1.2 million bbl and distillates inventory to have fallen by 1 million bbl on the week.

On the session, November West Texas Intermediate futures dropped $1.31 to $39.29 bbl, with November Brent futures on ICE falling $1.40 to settle at $41.03 bbl ahead of expiration on Wednesday (9/30). The December Brent contract held a $0.53 premium to the expiring contract. NYMEX October ULSD futures plummeted 3.05 cents to $1.1090 gallon ahead of contract expiration Wednesday afternoon, with the prompt spread at a 0.67 cents contango. October RBOB futures settled down 4.49 cents at $1.2017 gallon, while the November contract held a 3.06 cents discount to the expiring contract.

U.S. dollar index continued its slide, trading below the 94 level at 93.925 against a basket of foreign currencies even as consumer confidence in the U.S. rebounded a sharp 15.5 points in September, the biggest 1-month jump since April 2003, to a reading of 101.8.

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

Liubov Georges