Oil holds near 2-week low; ‘downside risks’ rising

SAN FRANCISCO (MarketWatch) — Oil futures traded mostly lower on Tuesday, holding ground at their lowest closing level in two weeks with traders finding little reason for a rally ahead of weekly data on petroleum supplies.

Analysts at Commerzbank Commodity Research said "downside risks are increasing," citing rising Iraqi oil exports, as well as a jump in speculative long positions.

/quotes/zigman/2196848/realtime CLN4 102.40, -0.07, -0.07%

"Extreme positioning often marks a turning point in terms of price performance," the Commerzbank analysts said in a note Tuesday.

"So far, any fall in prices is still precluded by the conflict in east Ukraine, the tensions between the West and Russia," which are likely to come to the fore once again as U.S. President Obama visits Poland, "and the production losses in Libya," the analyst said.

July crude (CLN4) edged down by 2 cents to $102.45 a barrel on the New York Mercantile Exchange. Prices are again set to close at their lowest level since May 20, based on the most-active contracts.

Jason Rotman, president of Lido Isle Advisors, said he believes Nymex oil may head lower to $100 a barrel.

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"We think that there has been a lot of 'fear premium' baked into prices, and that the recent supply data shows that there is indeed increasing supplies of overall crude stocks," he said. "Thus going forward, we think crude may trade lower from here."

Supply forecasts

The American Petroleum Institute will release its weekly report on U.S. crude supplies later Tuesday, and it will be followed as usual by the more closely watched Energy Information Administration report on Wednesday.

Data released last week by the EIA, covering the week ended May 23, showed a bigger-than-expected increase in crude supplies, though gasoline supplies fell more than expected on strong demand.

Analysts polled by Platts expect this week's reports to show a decline of 2 million barrels in crude inventories for the week ended May 30. They also forecast a rise of 2 million barrels in gasoline stockpiles and a decline of 1 million barrels for distillate supplies, which include heating oil.

At last check, gasoline for July delivery  slid more than a penny to $2.94 a gallon, while July heating oil dipped nearly 2 cents, or 0.6%, to $2.86 a gallon on Nymex. Read about the retail gasoline price outlook for the summer.

July natural gas  gained 3.5 cents, or 0.8%, to $4.65 per million British thermal units, extending its 1.5% gain from a day earlier.

On the ICE Futures exchange, July Brent crude (UK:LCON4) , the European benchmark, fell 35 cents, or 0.3%, to $108.48 a barrel.

On Monday, Nymex oil futures marked their lowest close since May 20 as traders gauged the outlook for energy demand following a spate of global economic data, including a correction to a U.S. manufacturing index reading.

In terms of U.S. economic news on Tuesday, energy traders are taking in monthly U.S. auto sales data, with Chrysler, for example, reporting an increase of 17% in May sales. U.S. factory orders for April came in a bit higher than expected, up 0.7%.

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