NEW YORK (DTN) -- New York Mercantile Exchange oil futures opened lower Monday morning as growing fears about a possible Greek debt default pushed the euro lower vs. the dollar, threatening the eurozone economic recovery and oil demand, while crude oil production continues to increase in the United States despite falling rig count.
Globally, the Organization of Petroleum Exporting Countries continues to produce above its 30 million bpd official production ceiling, with Libya's oil exports rising to 500,000 bpd and Saudi Arabia promising to increase its production in the coming months despite the fact that it already produces a record 10.33 million bpd.
In addition, the New York Federal Reserve a short while ago released its manufacturing data for the New York area comprised of New York, New Jersey and southern Connecticut, which disappointed the market. The Empire State index dropped 5.07 points to negative 1.98 in June, a disappointment when another gain was expected following a rebound of 4.3 points to 3.09 in May.
Nationally, U.S. industrial production slipped 0.2% in May from a revised negative 0.5% in April, according to U.S. Federal Reserve data released Monday morning. The latest weak economic data juxtapose strong jobs data released last week.
These data will factor into the Federal Open Market Committee's decision on when to raise federal funds rate, which could impact the dollar's value and market liquidity. The Fed has said its decision will be driven by data.
At 8 p.m. CDT, NYMEX July WTI crude futures opened down $1.14 at $58.82 bbl, near a $58.78 four-day low. ICE July Brent futures slumped $1.57 to a $62.30 bbl open, near a $62.24 one-week low. The Brent premium over WTI narrowed 42 cents to $3.49 bbl at the open, the smallest premium since late January.
In products trade, NYMEX July ULSD futures opened 3.25 cents lower at $1.8567 gallon, off a four-day low of $1.8556. The July RBOB futures contract slid 3.38 cents to a $2.0873 gallon open, near a four-day spot low of $2.0866.
On Wall Street, U.S. equities fell this morning in line with lower Eurozone markets after investors were spooked by the failure of Greek debt talks.
In currency trade, the euro eased slightly versus the dollar after Greek debt talks broke down on Sunday without a deal when Greece refused to make about $2 billion in pension cuts demanded by lenders who include the European Union and the International Monetary Fund.
Greece may not be able to make required $1.8 billion debt payment to the IMF due at the end of the June without an agreement with creditors. Investors fear a contagion effect for the eurozone economy if Greece defaults and exits the euro. But at the same time, investors are awaiting the US Federal Reserve meeting this week for clues as to when the Fed will raise federal funds rates given recent buoyant economic data. An FOMC decision to hike rate would impact the dollar and oil prices.
Meantime, despite oil services firm Baker Hughes reporting a 27th decline of nine active oil rigs to a 12-1/2 year low of 859 for the week-ended June 12, U.S. oil production rose nearly 200,000 to 9.61 million bpd, the highest in about three decades, according to Energy Information Administration.
At 470.6 million bbl as of the week-ended June 5, domestic crude oil supplies plunged 6.8 million bbl and yet they were still nearly 22% higher than a year ago and remain near levels not seen for this time of year in at least the last 80 years.
The International Energy Agency last week said global crude oil production remains "exceptionally high" and would continue to overshadow demand in 2015 despite the slowdown in U.S. drilling. OPEC is production 1.0 million bpd above its 30 million bpd target while a senior Saudi Arabian official said last week the kingdom's oil production grew 25,000 bpd in May to a record high of 10.33 million bpd and more oil supply is planned for the coming months.
As a consequence, sentiment turned bearish and money managers reduced their bets NYMEX oil contracts will trade higher. Net longs fell 3.7% during the week-ended June 9, according to Commodity Futures Trading Commission's trade data.
George Orwel can be reached at email@example.com
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