Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
[Brian L. Milne, DTN Refined Fuels Editor]
Nearest delivered oil futures traded on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange were little changed early Friday, trading on either side of Thursday’s settlements as they continue to consolidate at the low end of this week’s trade range.
Overnight, West Texas Intermediate, Brent, and RBOB futures all traded to fresh one-month lows on their spot continuous charts, while WTI and Brent are down $2.00 per barrel (bbl) this week, ULSD 5.5 cents gallon, with RBOB 8.0 cents lower than prior Friday.
Oil futures are near their lowest valuation of 2017, with only the May lows standing in front of full retracement to November 2016 when the Organization of the Petroleum Exporting Countries reached an agreement to cut production joined by several non-OPEC oil producers.
It was OPEC’s meeting on May 25 that sparked the current short-term downtrend for oil futures, even as the cartel and 10 non-OPEC oil producing countries agreed to rollover nearly 1.8 million bpd in production cuts for another nine months through the first quarter 2018.
Messaging was the issue, with Saudi Arabia and non-OPEC oil producer Russia telegraphing well in advance that their coalition would extend the agreement through March 2018, rousing market expectations for deeper cuts which failed to materialize, sparking the current selloff.
Wednesday’s Energy Information Administration report showing a 3.3 million bbl build in U.S. commercial crude supply during the week-ended June 2 following eight consecutive weeks with a decline and versus expectations for a drawdown unmasked the market’s concern that a global oil supply glut now in its third year would persist despite the production cuts from 24 countries because of climbing U.S. crude output. EIA also reported deep drops in demand for oil products for the week.
“The slow news day [Thursday] gave traders a chance to reflect on whether the bearish inventory data for last week and the resulting price drop signaled a change of fundamental trend. In our view, we think the figures for last week will come to be seen as a one-time setback due in part to the Memorial Day holiday than any more material shift,” said New York-based Tim Evans, energy futures specialist with Citi Futures and OTC Clearing, in an overnight market advisory.
At 9:00 a.m. EDT, NYMEX July WTI futures were up 8 cents at $45.72 bbl, edging off a fresh one-month spot low of $45.27 bbl, with support at the $43.76 May low. ICE August Brent crude was up 9 cents at $47.95 bbl after trading at a $47.40 bbl fresh one-month spot low, with support at the $46.64 low plumbed in May.
NYMEX July RBOB futures were 0.52 cent higher at $1.4971 gallon after reversing off a $1.4782 fresh one-month spot low, with support at $1.4500, the low from May. July ULSD futures were up 0.65 cents at $1.4308 gallon, trading Thursday at a $1.4098 one-month spot low, with support at the May low of $1.3748 gallon.
“While traders continue to stay focused on the “glut”, the futures markets are starting to signal a tighter market in the second half. The back end of the futures market is encouraging oil to be bought today and saved in storage for delivery down the road as the market must expect a dramatic tightening of supply,” said Chicago-based Phil Flynn, senior market analyst with The PRICE Futures Group.
Flynn highlighted the widening premiums for WTI futures calendar spreads, with the January 2018 contract and later trading $1.00 bbl or more above July futures.
The EIA in their Short-term Energy Outlook released Tuesday projects global oil demand would outpace new supply in the third quarter by 400,000 barrels per day, prompting supply drawdowns.
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