Oil Edges Higher Tuesday

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange (NYMEX) oil futures and Brent crude on the Intercontinental Exchange edged higher in early trading Tuesday on support from heightened concern over geopolitical issues affecting oil producing countries and bullish fundamentals, including strong demand and inventory destocking in the United States.

French President Emmanuel Macron is meeting with U.S. Donald Trump at the White House Tuesday, with Macron expected to persuade Trump to maintain U.S. participation in the 2015 Iranian nuclear accord.

Trump has threatened to withdraw the United States from the agreement on May 12 unless there are major changes made to the accord regarding inspections at Iranian nuclear facilities, Iran's ballistic missile program, and the timeline that allows Tehran to resume its pursuit of a nuclear capability.

U.S. sanctions would be re-imposed on Iran should the United States withdraw from the agreement that analysts estimate would cut 350,000 barrels per day (bpd) from Iranian crude exports. Iran's crude exports have been steady at 3.8 million bpd for several months.

Trump will meet with German Chancellor Angela Merkel on Friday, with Merkel also expected to try and persuade Trump to maintain U.S. participation with the accord.

As the clock ticks on the Iranian agreement, Naples, Florida-based PFI in a note said Saudi Arabia on Monday reported that 19 of its oil tankers were being held by Houthi rebels near the port of Hodeidah. Saudi Arabia is leading a coalition in Yemen to oust the Houthis, which have support from Iran, although Tehran denies involvement in the conflict. On Monday, there were reports that a Saudi airstrike in Yemen killed the political leader of the Houthis.

In North Africa, an attack over the weekend at Libya's Waha oil field cut oil production by 80,000 bpd until repairs can be made, which are seen completed by midweek. Libyan crude oil production averaged at a 968,000 bpd a three-month low in March.

These events come as production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and 10 non-OPEC oil producers led by Russia progress towards their goal of erasing a global supply overhang that triggered a steep sell-off in 2014 and kept a lid on oil prices through most of 2017. Last week, the Energy Information Administration (EIA) reported total U.S. commercial crude and oil products supply fell below the five-year average, achieving one goal of the production cuts, while U.S. gasoline demand reached a record high during the second week of April, boosting expectations for strong demand for the transportation fuel over the summer driving season.

Early gains follow Monday's advance to multiyear high settlements for ICE Brent, NYMEX West Texas Intermediate and ULSD futures while the NYMEX RBOB contract settled at a fresh nearly eight-month high.

NYMEX June WTI futures were up 22 cents at $68.86 barrel (bbl) at 9 a.m. ET, while the U.S. dollar trades at a nearly eight-week high Tuesday morning.

ICE June Brent crude futures were up 17 cents at $74.88 bbl, with its premium to WTI at a 3-1/2 month high amid geopolitical concerns and record high U.S. oil production. The Brent contract traded at a fresh better-than three-year spot high overnight at $75.27 bbl.

NYMEX May RBOB futures were 0.66 cents higher at $2.1303 gallon, with the May ULSD contract up 0.43 cents at $2.1452 gallon, edging off a $2.1522 gallon better-than three-year high traded overnight.

Oil futures are in short and medium uptrends, although a lack of follow through buying near Monday's highs coupled with overbought pressure could trigger profit taking led selling.

Brian L. Milne can be reached at brian.milne@dtn.com

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