NEW YORK (DTN) -- New York Mercantile Exchange oil futures with nearest delivery contracts extended higher as part of a broader relief rally at the start of regular trade Monday morning, as the U.S. dollar tumbled versus key world currencies on shifting sentiment in Britain after opinion polls showed voters willing to let the United Kingdom remain a member of the European Union.
The dollar fell to an 11-day low versus a basket of six major currencies with the sterling pound up 2%, the biggest one-day gain since 2008. Risk on trade is driving equity markets. Concerns over an exit from the EU by Britain spurred worries over economic growth last week and several central banks reacted by keeping interest rates unchanged, but those worries have since eased after two weekend polls showed the remain camp up 3% over the leave camp.
At 9:00 AM ET, NYMEX July West Texas Intermediate futures gained $1.00 to $48.98 bbl, off one-week high of $49.08. With the July WTI futures contract set to expire on Tuesday, an increase in market activity on the August contract is expected during regular session trade today.
The August WTI contract was up 98cts at $49.66. ICE August Brent futures climbed $1.04 to $50.21 bbl, off a one-week high of $50.35. In products trade, NYMEX July ULSD futures rallied 2.87cts to $1.5104 gallon, near a $1.5122 one-week high. July RBOB futures rose 3.58cts to $1.5411 gallon and near a $1.5437 one-week high. On fundamentals, oil demand this year has so far outpaced expectations, prompting the International Energy Agency last week to revise higher its oil demand growth forecast for 2016 by 200,000 bpd to 1.3 million bpd. Unplanned supply disruptions in Canada and Nigeria tightened the oil market last month, according to the Energy Information Administration. However, Canadian production is slowly returning to normal and the Nigerian government is in talks with militants that could end attacks on oil and gas infrastructure.
In pre-market trade, oil futures continued to recover after Thursday's plunge, rallying despite a new report by Baker Hughes Inc. showing the number of active oil rigs in the United States increased for a third straight week, suggesting the potential for higher production. The report showed an increase of nine rigs for the week-ended June 17, bringing the total number of additional oil rigs to 21 since May 27. One of the factors helping the oil futures complex is the tightening demand and supply balance, as the summer peak driving season gets underway.
Monday marks the summer solstice. IEA last week revised its outlook, saying oil supply and demand would come into balance earlier than previously thought, in the second half of 2016 instead of early 2017. Other analysts were skeptical about further gains in oil futures, however. "Fundamental support for crude oil is fragile--it's dependent on significant Nigerian production remaining offline," said analyst Tim Evans at Citi Futures. "Inventories are high and possibly still rising. Money managers [are] overinvested in the idea that the market is rebalancing, or already has rebalanced, and vulnerable to bearish news."
George Orwel can be reached at firstname.lastname@example.org
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