Oil Settles Mostly Lower Tuesday

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures settled Tuesday's session mostly lower with the expiring July Brent contract on the IntercontinentalExchange down fractionally, with both West Texas Intermediate and Brent futures briefly topping the $50 bbl psychological benchmark before reversing down.

NYMEX June ULSD futures were the only contract to muster a gain, expiring up 0.35cts at $1.4975 gallon after rallying to a $1.5250 seven-month high on the spot continuation chart. July ULSD futures settled down 0.44cts at near parity, $1.4971 gallon, to the now-expired June contract.

NYMEX June RBOB futures held to the low end of prior week's trade range before expiring down 1.7cts at $1.6149 gallon, with July delivery settling 2.44cts lower at $1.6134 gallon.

RBOB futures were not only the loss leader of the session, but turned in the weakest performance in May despite the month ending with the kickoff to peak driving demand during the Memorial Day weekend. Gasoline consumption in the United States is expected to reach a record high this year, topping 2007's all-time high of 9.286 million bpd. This year through May 20, implied gasoline demand has averaged 9.277 million bpd, 364,000 bpd or 4.1% above the same period in 2015, according to data from the Energy Information Administration.

However, domestic inventory remains high, at 240.1 million bbl as of May 20 EIA shows, 19.5 million bbl or 8.8% above year prior, flattening out the modest backwardation at the front end of the forward curve.

During May, nearest delivered ULSD futures rallied 11.15cts or 8.0% while the RBOB contract eked out a 1.05cts gain. The differing price action coincides with data from the Commodity Futures Trading Commission showing noncommercial market participants reducing a net-long position in RBOB in May while gradually building a net-long stance in the ULSD contract.

NYMEX July WTI futures settled lower for the third consecutive session, reversing from a $50.10 bbl intraday high to end down 23cts at $49.10 bbl. Nearest delivered WTI futures however rallied $2.18 or 4.7% in May and is $11.06 or 29.9% higher year-to-date.

ICE July Brent crude expired down 7cts at $49.69 bbl after trading at a $50.05 intraday high, with the August contract settling down 47cts at $49.89 bbl. During May, Brent crude nearest to delivery gained $2.32 or 4.9% while up $12.41 or 33.3% year-to-date.

WTI futures were under pressure from a strengthening U.S. dollar, which gained in index trading despite mixed data, while major U.S. equity indices declined.

In May, the Institute for Supply Management reported a 1.1 point decline in the Chicago Business Barometer to 49.3 in May, the sixth time in the past year the index has dipped into contraction. Also, the Conference Board reported U.S. consumer confidence slipped to a six-month low in May, down 2.1 points from April to 92.6, with the market calling for an increase to 96.1.

Those data points contrasted with a 1.0% gain in consumer spending in April, according to the Bureau of Economic Analysis, the largest monthly gain in nearly seven years and more than an expected 0.7% increase. Also, the S&P/Case-Shiller National Home Price Index gained 5.4% in March, matching expectations, and following a 5.3% annual gain in February.

Additional data on manufacturing and services and closely watched jobs data are due out this week that could jostle the market ahead of the mid-month Federal Open Market Committee's meeting. Central bank officials have been vociferous in recent weeks that a hike in the important federal funds rate was a real possibility in June, which the market had previously discounted. A higher interest rate would most likely strengthen the U.S. dollar, which has an inverse relationship with domestic crude prices.

On Thursday, the Organization of the Petroleum Exporting Countries will hold their biannual meeting in Vienna, with markets doubtful the 13-member cartel would agree upon a coordinated production cut. OPEC officially abandoned its quota system aimed at regulating global oil prices in November 2014, with the cartel's greatest producer, Saudi Arabia, instead vying to increase its market share in an age of abundant oil driven by the U.S. shale revolution. The meeting will be watched for signs of further discord between members, namely Saudi Arabia and Iran.

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

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