Oil Futures Open Down in Thin Trade

By George Orwel
DTN Refined Fuels Editor

NEW YORK (DTN) -- After a two-day rally, New York Mercantile Exchange oil futures slid at the open of regular trade Friday morning as traders moved to book profits ahead of the three-day Memorial Day weekend holiday break in the United States.

The weakness for oil futures was also underpinned by a supply glut for crude and refined products, but improving seasonal demand is expected to be supportive this summer. Trade volume is expected to be thin today since some market participants may leave early for the weekend.

NYMEX July WTI was the strongest segment of the complex on Thursday, with traders growing confident with the recent decline in U.S. crude production and falling crude oil inventories revealed in weekly data more than anything else. The RBOB and ULSD contracts are keeping pace with WTI that so far is set to eke out a gain for the week.

The market is also expected to monitor events in the Middle East following a BBC report of a deadly suicide attack today at a mosque in Saudi Arabia, the world's largest exporter of crude oil. The Saudis are locked in a regional power struggle with Iran.

At 9:00 AM ET, NYMEX July WTI crude futures were 95 cents lower at $59.77 per barrel (bbl) while ICE July Brent futures were 92 cents lower at $65.62 bbl after inside trade. Brent's premium over WTI was unchanged at $5.82 bbl at the open.

In products trade, NYMEX June ULSD futures opened 1.99 cents lower at $1.9660 gallon while June RBOB futures declined 2.73 cents to $2.0551 gallon after inside trade.

On Wall Street, equities and the dollar were lower after fresh federal data showed higher inflation, with a weaker dollar limiting oil prices' downside. The 0.1% gain for the Consumer Price Index was better than expected and a far cry from softer economic data issued this week in China, the U.S. and Germany that also weighed on the oil market.

Oil futures rallied Wednesday and Thursday on a weaker U.S. dollar, domestic supply draws signaling improving gasoline demand ahead of the peak-driving season during the summer, and hopes for additional Chinese stimulus measures to spur the world's second biggest economy.

Even when oil futures rallied this week, the fundamental disposition of the underlying market hasn't changed much, remaining oversupplied, said analyst Tim Evans at Citi Futures.

Evans said gasoline stocks were 4.9% higher than a year ago, with the surplus an added cushion against an unexpected jump in demand and unplanned refinery outages. "While gasoline market may look strong at the moment [but] once the driving season demand is fully discounted into the price, it's time to sell," he said.

Meantime, Saudi Arabian oil exports increased as the Organization of Petroleum Exporting Countries pumped more crude than their agreed output ceiling of 30 million bpd. OPEC crude supply rose by 160,000 bpd to 31.21 million bpd in April, the International Energy Agency said.

Last November, OPEC rejected calls to cut its three-year old output ceiling of 30 million bpd, prompting a sharp selloff for oil prices. Oil prices have since stabilized, and analysts expect OPEC to maintain the 30 million bpd target when the 12 OPEC members meet on June 5 in Vienna.

George Orwel can be reached at george.orwel@telventdtn.com

(BAS)

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