WTI Drops Ahead of Expiration on Crude, Gasoline Stock Builds

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange declined in early trade Wednesday after the American Petroleum Institute late Tuesday reported a larger-than-expected build in U.S. crude and gasoline stockpiles during the week ended July 15, while renewed strength in U.S. Dollar Index put further pressure on the oil complex.

API reported commercial crude oil stocks rose 1.860 million barrels (bbl) last week, above estimates for a 600,000-bbl increase. Stocks at the Cushing, Oklahoma, tank farm -- the NYMEX delivery point for West Texas Intermediate futures -- rose 523,000 bbl. The data also show gasoline supply increased 1.290 million bbl last week compared with calls for a build of 200,000 bbl. Distillate inventories dropped 2.153 million bbl through July 15, missing calls for a build of 1.2 million bbl.

Underlining losses in the oil complex Wednesday morning are reports that Libya restarted oil exports from its major terminals this week, ending a months-long blockade that had halved the north African nation's output.

"The National Oil Corporation declares the lifting of force majeure and the end of all closures of all Libyan oil fields and ports," the new NOC Chairman, Farhat bin Qadara, said in a televised news briefing after securing an agreement with protesters and tribal heads to reopen the fields and export terminals that had been largely shut since mid-April.

Libya, a member of the Organization of the Petroleum Exporting Countries, has seen its production plummet by about 50% in recent months due to political strife between rival governments, while chronic underinvestment in infrastructure has also curtailed output. The ramp-up of Libyan production could offer some relief for an undersupplied world oil market, and rein in high prices that have added to inflation in oil-consuming countries.

In financial markets, U.S. equity futures edged higher early Wednesday, while the dollar strengthened following a three-session pullback from a 20-year high as markets reacted to a solid set of corporate earnings that suggest underlying resilience in the world's biggest economy.

Oilfield services provider Halliburton rose 0.9% on Tuesday after its profit and revenue topped forecasts. Likewise, health care giant Johnson and Johnson added 0.6% to beat market expectations. A potential recession was practically invisible as companies reported earnings this week, shifting sentiment in the broader markets to one of optimism.

Further spurring that optimism, Russian President Vladimir Putin indicated Moscow would restart the Nord Stream 1 natural gas pipeline to Europe on Thursday but warned that flows could be curbed soon after if sanctions prevent additional maintenance on pipeline components.

Speculation had swirled in recent days as to whether Russia would restart the pipeline following 10 days of annual maintenance after Gazprom declared force majeure on several European natural gas buyers citing "past and current shortfalls in gas deliveries," according to German utility Uniper. The European Commission earlier this week said it did not expect the pipeline would be back online.

The restart of the major gas pipeline would be welcome news for the European Union as it battles a record-breaking heatwave that has gripped much of the continent in recent days, pushing its energy systems to the limit.

At least five EU countries have declared states of emergency or red warnings as wildfires, triggered by extreme temperatures, burn across France, Greece, Portugal and Spain. In the past week, more than 31,000 people have been displaced from their homes because of wildfires in the Gironde region of southwestern France.

For energy systems, scorching heat means a greater threat for deeper disruptions for power generation, as nuclear operators struggle to keep their plants cool and natural gas stations run less efficiently. With higher temperatures, supply may not be sufficient to meet demand in addition to restocking required ahead of next winter.

Near 7:30 a.m. EDT, WTI August contract fell $2.01 to $102.21 bbl ahead of expiration Wednesday afternoon, with the next-month delivery WTI narrowing its discount to $3.17 bbl. Brent crude futures for September delivery declined to $105.70 bbl, down $1.50 bbl. NYMEX August RBOB futures dropped 3.75 cents to $3.2700 gallon, while front-month ULSD fell 8.63 cents to $3.5405 gallon.

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

Liubov Georges