Oil Futures Plunge to New Lows as Bear Market Swats Data
CRANBURY, N.J. (DTN) -- Supportive weekly data released midmorning by the
Energy Information Administration inspired buying nearest delivered oil futures
in the New York Mercantile Exchange only briefly, before the sell button was
hit amid the newly minted bear market to send the contracts to new settlement
A larger-than-expected 2.5 million bbl drawdown in U.S. commercial crude oil
inventory that lowered supply to a 4-1/2 month low, and a 1.553 million bpd
surge in total oil product supplied to market to a nearly seven-month high at
21.067 million bpd during the week ended June 16 were bullish features that
boosted nearest delivered oil futures.
However, total commercial crude and oil product supply in the United States
moved down a modest 1.9 million bbl from a four-month high to 1.351 billion bbl
that is partly explained by a 335,000 bpd jump in gasoline imports. The period
reviewed was only the third week in 2017 which total commercial oil supply held
above 1.350 billion bbl, which follows a 12-week period in 2016 from mid-July
through the end of September in which inventory has been this high, peaking
during the end of August at a 1.374 billion bbl record high.
These data points sum up the impetus behind oil futures move into bear
market territory this week, which is defined as a 20% decline from a recent
high water mark. The previous bear market ended in August 2016, coinciding with
initial news that Saudi Arabia was serious in their efforts to negotiate
production cuts by the Organization of the Petroleum Exporting Countries after
failed attempts earlier in the year, with an agreement emerging on Nov. 30.
The stubbornness of high oil supply was illustrated earlier in June when the
International Energy Agency said commercial oil inventory held by the 35
industrialized nations, which include the United States, increased in April
despite four months of production cuts by OPEC and 10 non-OPEC oil producing
countries of nearly 1.8 million bpd. A surplus in commercial oil inventory held
by the Organization for Economic Cooperation and Development against the
five-year average widened to nearly 300 million bbl, and to a higher surplus
then when OPEC agreed to their production agreement in November.
Atop of these data points, a Bloomberg index shows floating storage, defined
as tankers with oil supply that are not moving, reached a record high.
The contango market structures for West Texas Intermediate crude futures on
NYMEX and Brent crude on the IntercontinentalExchange widened sharply in June,
although the calendar spreads for WTI narrowed today. On Brent's forward curve,
the calendar spreads through December have narrowed somewhat this week while
widening sharply thereafter, with July 2018 at a nearly $3 bbl premium to the
August contract, which is nearest to delivery.
A widening contango encourages storing oil and buying deferred dated futures
contracts which would exacerbate the surplus and further pressure oil prices
nearest to delivery and in the spot physical market. OPEC said their goal with
the production cuts is to lower global oil inventory to their five-year
average, and a widening contango market structure would frustrate those efforts.
NYMEX August WTI futures settled at a more than 10-month low settlement
value on the spot continuous chart of $42.53 bbl, down 98cts, with an intraday
low on the session at $42.05 bbl.
ICE August Brent crude futures ended down $1.20 at $44.82 bbl, the lowest
spot settlement since mid-November, and near a $44.35 intraday low.
Brent's premium to WTI narrowed to a $2.29 bbl one-week low, with a wider
discount for WTI futures deemed essential in beefing up U.S. crude exports. The
EIA today reported a 205,000 bpd decline in U.S. crude exports to 517,000 bpd
for the week ended June 16, a weekly low for 2017.
NYMEX July RBOB futures ended at a fresh near seven-month spot low
settlement at $1.4105 gallon, down 1.35cts on the session, paring a decline to
a $1.3955 intraday low.
NYMEX July ULSD futures swung to a more than 10-month low settlement on the
spot continuous chart of $1.3648 gallon, down 3.01cts, trimming a penny loss
off an intraday low of $1.3540 gallon.
Brian L. Milne, 1.609.371.3328, firstname.lastname@example.org, www.dtn.com. (c) 2017
DTN. All rights reserved.