NYMEX Oil Futures Reverse Lower

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures reversed lower Monday morning, dropping back on weakness in key equity markets amid risk-aversion after China slapped retaliatory tariffs on 128 U.S. products.

"There's no news driving the oil market lower now except the Dow Jones selloff," said analyst Phil Flynn at Price Futures. The Dow Jones Industrial Average was down more than 100 points while the S&P 500 Index was down 10 points this morning before trimming losses. Oil futures have largely traded in tandem with the major equity indices late in the just ended first quarter, with the decline in West Texas Intermediate curbed somewhat by a weakening U.S. dollar.

Baker Hughes reported Thursday (3/29) that the number of rigs drilling for oil fell by seven last week to 797 while up 135 on the year. A day earlier, the Energy Information Administration reported domestic crude oil production rose 26,000 bpd to a 10.433 million bpd fresh record high during the week-ended March 23, 1.286 million bpd higher than a year ago.

Countering the bearish growth in U.S. oil production has been strong demand; especially for gasoline. Seasonally, gasoline demand will pick up in the second quarter.

Boosting gasoline demand during the first quarter was strong exports, which jumped over 1.0 million bpd to 1.099 million bpd during the week-ended March 23.

Markets are expected to remain volatile in the second quarter, said analysts. Heightening that expectation has been geopolitical factors, including concern U.S. President Donald Trump would scuttle the 2015 Iran nuclear deal next month that would threaten Iran's oil exports.

Trump said he would not certify the Iran nuclear accord when it comes up for recertification on May 12 without major changes made to the agreement. Should Trump move ahead with not certifying the accord, sanctions could be re-imposed on Iran, curtailing oil exports from the third largest oil producer in the Middle East.

According to EIA data, Iran's crude oil production and exports declined drastically when sanctions were slapped on Iran several years ago. EIA shows Iranian crude oil exports dropping from 3.7 million bpd in 2011 to 2.7 million bpd in 2013. The 2015 nuclear accord freed Tehran from those sanctions, with Iranian oil production climbing and Iranian exports averaging near 3.8 million bpd in February.

In early trade, NYMEX May WTI crude declined by about $1.00 to just below $64.00 bbl. June Brent crude on the Intercontinental Exchange was about 75cts lower near $68.50 bbl following the expiration of the May contract on March 29.

Short-term downtrends for WTI and Brent are now in place after they failed to break resistance at recent highs of $66.55 and $71.05, respectively.

NYMEX May ULSD futures was more than 2.0cts lower, slipping below $2.00 gallon, with May RBOB futures down roughly 2.75cts near $1.9925 gallon. Today is the first session with the May contracts in the front month delivery position.

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