DTN Oil

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on Intercontinental Exchange slipped in early trade Friday, with the crude contracts on track for their first weekly loss in over a month as investors look to lackluster fuel demand in the United States after inventory data showed large builds in crude and distillate stocks, while flaring U.S.-China tensions further fueled risk-off sentiment.

U.S. President Donald J. Trump will hold a news conference later today when he is expected to give the first formal U.S. response to China's security law over Hong Kong. Analysts speculate the retaliation could include anything from scrapping of Phase One trade deal to imposing sanctions on top Communist Party officials.

The potential for further deterioration in already strained U.S.-China diplomatic relations is quickly growing, which took a big hit after Beijing mishandled the coronavirus outbreak in its province of Wuhan earlier this year and could derail the recent rally for the U.S. stock market.

U.S. equity futures pulled back modestly in overnight trade, following a softer session in Asian and European markets. U.S. dollar weakened further, trading near a 12-week low 98.055 against a surging euro, bolstered by a 750 billion euros coronavirus rescue package for the eurozone passed this week. Eurozone's economy suffered a heavy blow from the COVID-19 pandemic, with both Italy and France reporting their gross domestic product contracted to a negative 5% during the first quarter.

Domestically, investors await a fresh reading for U.S. consumer sentiment for May due out 10 a.m. ET, with consensus calling for a modest improvement to 74 after the index slumped to multi-month low 71 mid-April. U.S. Bureau of Labor Statistics reported the number of new first-time unemployment claims eased to 2.123 million for the week ended May 23 that although painfully high, represent a decrease in initial claim filings from the previous week by 323,000. Initial jobless claims peaked at 6.8 million mid-April and has since been in a downtrend through May 23, albeit are above 40 million. U.S. continued unemployment claims shed 3.9 million from the previous week to 21.052 million, while unemployment rate declined for the first time since the coronavirus-related layoffs began.

Energy Information Administration inventory data released Thursday showed large builds in U.S. commercial crude and distillate supplies, underlining broad weakness in domestic economy. U.S. commercial crude supplies jumped 7.9 million barrels (bbl) on the week to a near record high 534.4 million bbl, highlighting a long road ahead before a market rebalance. Distillate inventories added 5.5 million bbl to a better than three-year high 164.3 million bbl, while demand for distillate fuels fell another 11% on the week.

In early trading, NYMEX West Texas Intermediate July futures were down $0.97 to $32.75 bbl, with the August contract narrowing its premium to $0.37 at $33.20. ICE Brent July futures fell $0.84 to $34.45 bbl before expiration Friday afternoon, with next month-delivery August contract trading at a $0.75 premium. NYMEX ULSD June futures dropped back 2.31 cents to $0.9025, with ULSD contract for July delivery trading at $0.9635 before assuming the front-month position. NYMEX RBOB June futures were down slightly at $0.9890 gallon ahead expiration, with the July contract narrowing its premium to 2.86 cents.

Liubov Georges can be reached at liubov.georges@dtn.com

(c) Copyright 2020 DTN, LLC. All rights reserved.