Oil Futures End Mixed Monday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled mixed this afternoon with crude reversing lower after a seesawing most of the session, falling on concerns over rising supply while refined products posted modest gains on seasonal demand.

"Petroleum prices have struggled to hold above new lows reached overnight despite rallies in global equity markets on a drop in political uncertainty," said analyst Tim Evans at Citi Futures in New York.

NYMEX August West Texas Intermediate crude oil futures settled 65 cents lower at $44.66 per barrel (bbl), off a fresh two-month spot low of $44.49. September Brent crude on the IntercontinentalExchange dropped 51 cents to $46.25 bbl settlement, off a fresh two-month spot low of $45.90.

In products trade, NYMEX August ULSD futures up 0.40 cent to $1.4163 gallon at settlement, reversing off near two-month spot low of $1.3959. The August RBOB futures contract settled up 1.27 cents at $1.3835 gallon, bouncing off a four-month low of $1.3509.

The futures complex opened higher earlier this morning amid optimism about the United States' economy, on the heels of robust jobs data issued Friday, and political optimism in Japan and the United Kingdom. The complex had been lower overnight.

Japan's Prime Minister Shinzo Abel's sweeping victory in the upper house of parliament strengthens his hand to implement more economic stimulus measures, adding liquidity to the market.

In the UK, Home Secretary Theresa May is expected to become Prime Minister on Wednesday after her only challenger Andrea Leadsom withdrew this morning from the race to succeed David Cameron, allowing her to take over as leader of the Conservative Party this afternoon.

The move removes uncertainty in UK leadership that generated volatility in the aftermath of the June 23 referendum on the country's European Union membership. She will now lead negotiations for separation from the EU.

In the United States, a robust June payroll data released Friday suggests the economic recovery is back on track, which bodes well demand growth. However, concerns over rising supply at home and abroad as well as signs Asian refiners are cutting back on crude runs weighed on the futures complex.

On Wall Street, U.S. equity indices were enjoying risk-on trade, with the Dow Jones Industrial Average up 0.6% since May 2015, with S&P 500 advancing 0.5% to a record high, and Nasdaq 100 rising 0.8% to a seven-month high just before their respective closes.

In currency trade, the U.S. dollar to the highest level since March 16 versus a basket of six main world currencies, with a strong greenback pressing the oil futures.

For oil traders, the focus is shifting to rising supply after Baker Hughes Inc.'s data issued on Friday showed an increase in the number of oil rigs. The Baker Hughes report showed the number of rigs drilling for oil and gas in the United States rose by nine to 440 last week, with the number of active oil rigs up 10 to 351. Rig counts have risen in five of the past six weeks, suggesting stabilization in oil prices and improved demand is encouraging drillers to boost production.

Overseas, the restart of previously shut-in production in Canada, Nigeria and Libya is underway, while Iran continues to raise its oil exports after the lifting of sanctions earlier this year. Iran has lowered its official oil price by 40 cents a barrel for August shipments to attract more foreign buyers. "For all of the headline noise in equities, however, the oil market remains on the defensive after last week's price drop called attention to current soft fundamentals, including the extent to which increased OPEC production may be delaying the anticipated rebalancing of the global supply/demand balance," said Evans.

George Orwel can be reached at george.orwel@dtn.com