NEW YORK (DTN) -- New York Mercantile Exchange oil futures extended losses Tuesday morning as President Barack Obama began the hard task of selling the Iran nuclear deal announced earlier in the day to a U.S. Congress, a deal that if passed would lead to more oil flowing to the global oil market.
The oil futures complex also continues to be depressed by expectation for weekly stock builds for gasoline and distillate fuels in the United States, while finding support to limit the decline in a weaker U.S. dollar. The dollar index rose to a five-day higher overnight on the prospect of a U.S. federal funds rate hike this year before reversing lower. On Wall Street, equities were mostly lower.
Federal Reserve Chair Janet Yellen, who said last week that she expected rates to rise this year, is due to give semi-annual Congressional testimony on monetary policy on Wednesday and Thursday.
At 8 a.m. CDT, the NYMEX August WTI crude contract was down 35 cents at $51.85 bbl, off a four-day low of $50.88. ICE August Brent crude futures were down 64 cents at $57.21 bbl after posting a four-day low at $56.43. The Brent premium over WTI narrowed 34 cents to $5.31 bbl.
In products trade, NYMEX August ULSD contract was down 1.94 cents at $1.76993 gallon after inside trade. The NYMEX August RBOB contract dropped 2.84 cents to $1.9112 gallon, off a near three-month spot low of $1.9026.
Oil trading is dominated Tuesday by the Iran nuclear deal announced earlier Tuesday morning by negotiators in Vienna and by President Barack Obama. The accord would curb Iran's nuclear development program for 15 years in exchange for allowing the phased-lifting of sanctions against Tehran that has crippled Iran's economy in recent years. The sanctions would “snap-back” into place if Iran violates terms of the deal, which includes a strict monitoring regime by international arms inspectors.
Iran has billions of dollars frozen in foreign banks that it wants to access when the sanctions are lifted, as well as to double oil exports. According to the U.S. Energy Information Administration, Iran produced 2.8 million bpd of crude oil last year, down from 3.7 million bpd in 2011 when sanctions were imposed on Tehran.
Iran is now exporting 1.4 million bpd of oil to Asian countries that are not participating in the current sanctions regime, EIA says, but the agreement announced today would now allow the OPEC member nation to restart exporting oil to the United States and the European Union. Before the sanctions were imposed in 2011, Iran exported about 2.6 million bpd.
The sanctions won't be lifted right away and the deal is subject to a 60-day review by the U.S. Congress, which could vote to disapprove it, said Senate Foreign Relations Chairman Bob Corker. Obama will have a hard time selling the agreement to Congress, and Israeli Prime Minister Benjamin Netanyahu who opposes the deal has vowed to lobby U.S. lawmakers to reject it. Even if Obama prevails, the earliest Iran would raise its oil exports by at least 1.0 million bpd is next year, said analysts.
For oil traders, the combination of the Iran deal and concerns about China's slowing economy and the Greek debt crisis represents a trifecta of bearish factors that could press crude oil futures to fresh lows. This comes as a sell-off in gasoline futures continues, with demand seen to have peaked during the Fourth of July holiday weekend in the United States, said analyst Phil Flynn at Price Futures.
An early survey shows analysts expecting gasoline stocks to have increased by 500,000 bbl, with distillate fuel stocks up by as much as 3.0 million bbl for the week-ended July 10. A decline of as much as 3.5 million bbl is projected for domestic crude oil stockpiles, according to pundits.
The American Petroleum Institute will release its weekly data at 3:30 p.m. CDT while the Energy Information Administration will issue its data Wednesday morning.
In addition to the expected weekly crude stock build and weaker dollar, the decline in crude futures was curbed following Monday’s Monthly Oil Market Report from the Organization of Petroleum Exporting Countries that boosted its outlook for global crude oil demand this year and in 2016.
George Orwel can be reached at firstname.lastname@example.org
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