DTN Oil

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were making modest gains early Thursday ahead of weekly inventory statistics from the Energy Information Administration, and following heavy selling this week over recession fears, while the United States tightened sanctions on Iranian oil exports ahead of a trip by U.S. President Joe Biden to Saudi Arabia.

U.S. Treasury Department said Wednesday they were imposing sanctions on companies in China and Emirati for their assistance in helping Iran sell its oil which has been under sanctions since the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) agreement in 2018 by the Trump administration. The Biden administration has been eager to return to the multinational agreement but met resistance from Tehran, with Iran having since advanced its nuclear program. Last week, discussions between intermediaries ended without a breakthrough following a three-month hiatus, while Tehran expressed little interest in continuing the talks.

U.S. State Secretary Antony Blinken Wednesday afternoon tweeted, "Absent a commitment from Iran to return to the JCPOA, an outcome we continue to pursue, we will keep using our authorities to target Iran's exports of energy products."

The toughening stance against Iran comes ahead of a visit to the Middle East planned by Biden on July 16, when Biden is scheduled to meet Saudi Arabian Crown Prince Mohammed bin Salman ostensibly to seek the kingdom's support in producing more oil. The two leaders have a chilly relationship, with Biden calling the crown prince, frequently referred to by his acronym MBS, a pariah while campaigning for the presidency. MBS reportedly refused a phone call from Biden. While Biden wants more oil from the Saudis, MBS wants U.S. support against Iran, an adversary to the kingdom.

Domestically, market watchers await weekly inventory data from the EIA due out at 11 AM ET, which follows Wednesday afternoon's report from the American Petroleum Institute showing a large 3.825 million bbl build in commercial crude stocks during the week-ended July 1. API also reported a 1.814 million bbl draw from gasoline stocks and a 635,000 bbl decline in distillate stocks.

While the global oil market remains tight, and U.S. inventories are well below historical averages, concern over lost demand amid an economic contraction has gained momentum in July following slowing growth in U.S. manufacturing and services, while an economic tracker suggested the United States fell into recession during the first half of 2022.

There is conflicting evidence that the U.S. economy has contracted, with the labor market robust. U.S. Bureau of Labor released its Statistics Jobs Opening and Labor Turnover Survey on Wednesday which showed 11.3 million job openings in May, down 427,000 from April, while above expectations for a decline to 11.25 million.

This morning, ADP will release its employment data for June that is expected to show job growth of 200,000, while BLS will release its monthly non-farm employment situation report Friday morning with expectations for job growth of 270,000, down from 390,000 new jobs created in May.

Yet, inflation, which is hovering near a 40-year high, has sapped economic momentum, with consumer spending slowing to 0.2% in June according to the Bureau of Economic Analysis' Personal Consumption Expenditures Index, with sentiment at a historic low. The Federal Reserve has expressed conviction to lower inflation through monetary tightening, noting higher interest rates could slow economic growth.

"Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist," read the minutes to the Federal Open Market Committee's June 14-15 meeting when central bank officials lifted the federal funds rate 75-basis points -- the largest single meeting increase in 28 years.

FOMC meets next on July 26-27 when they are again expected to hike interest rates by another 75-basis points.

Critics of the Fed said the central bank moved too slow to stop inflation, which has broadened. They believe the Fed is now forced to raise interest rates more than they might have had to if they reacted sooner, risking pushing the economy into recession. Concern over recession has led to steep losses in ULSD and RBOB futures in July.

Shortly before 8 AM ET, NYMEX August West Texas Intermediate futures were $1 higher near $99.55 bbl, and ICE August Brent was up a like amount near $101.65 bbl. NYMEX August RBOB futures were 3cts higher near $3.2675 gallon, with August ULSD futures little changed near $3.4120 gallon.

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