Oil Lower in Monday Trade

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange edged lower following modest gains Friday, consolidating within last week's trade range ahead of the expiration of July West Texas Intermediate options Monday afternoon.

At 9 a.m. ET, July WTI futures were down $0.30 near $52.20 per barrel (bbl), trading at a roughly $0.25 discount to the July contract. ICE August Brent futures were $0.25 lower near $61.75 bbl. NYMEX July RBOB futures were 1.15 cents lower at $1.7210 gallon, with the July ULSD contract down 1.45 cents near $1.8150 gallon.

The market is bouncing between gains and losses on increased geopolitical risk following last week's attacks on two fuel tankers in the Gulf of Oman, and anxiety over trade tensions between the United States and China that could escalate later this month, with the dispute slowing world trade. The market is concerned an escalation in the trade war could slow world economic growth and global oil consumption.

U.S. Secretary of State said the United States would protect shipping lanes following last week's attacks near the Strait of Hormuz, with the Trump administration laying blame on Tehran for the attacks. Shipping rates are increasing rapidly amid the increasing danger, with Saudi Arabian Energy Minister Khalid al-Falih saying there needs to be a concerted effort to ensure shipping lanes remain open, according to Reuters.

U.S. President Donald Trump has threatened to impose 25% tariffs on $300 billion of Chinese imports to the United States not yet subject to a duty if China's President Xi Jinping refuses to meet him at the G-20 meeting to be held in Japan June 28-29.

The Organization of the Petroleum Exporting Countries is considering delaying their June 25-26 meeting to after the G-20 Summit to gain a better understanding on U.S.-China dialogue, with a production agreement between OPEC, Russia and nine additional non-OPEC oil producers set to end June 30. Saudi Arabia has signaled broad consensus for rolling over the production agreement with the exception of Russia.

The International Energy Agency on Friday credited the OPEC agreement with reversing a supply overhang in the first quarter, estimating demand is outpacing production in the second quarter by 400,000 barrels per day (bpd).

IEA downgrades oil consumption expectations by 190,000 bpd over most recent two months for annual growth of 1.2 million bpd, but sees year-on-year growth rate increasing to 1.4 million bpd in 2020.

Federal Open Market Committee begins a two-day meeting on monetary policy Tuesday, and will provide their latest economic projections. The market increasingly wants a rate cut, but several analysts have said there is no need to reduce the federal funds rate now at 2.5%.

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

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