CRANBURY, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange opened the new trade week with a rally alongside sharp gains by major U.S. equity indices. This comes after Friday's selloff, with the advance underpinned by heightening geopolitical tension in the Middle East over reports Syria bombed civilians with a chemical weapon.
Reports indicate 70 people in the city of Douma, Syria, were killed on Saturday by a chemical weapon after a barrel bomb was dropped on an air raid shelter, with many of the dead women and children. Syria denied the attack, and Russia, an ally with Syria alongside Iran in the years-long bloody conflict, called the event a "hoax."
U.S. President Donald Trump criticized Russian President Vladimir Putin, saying he shared blame for the attack, while warning of a "big price to pay" for the use of chemical weapons. Trump spoke with French President Emmanuel Macron on Sunday, agreeing to "a strong joint response," according to the White House.
The attack followed comments by Trump last week that he was looking for the United States to pull out of Syria, while Syria had made strong advances against rebels that are allied with the United States. The attack was also on the heels of new U.S. sanctions against Russia, which focused on several of the country's oligarchs. Russian markets were down sharply in early trading.
The event comes a little more than a month ahead of the May 12 deadline Trump gave for major changes to be made to the nuclear accord with Iran. Absent those changes, Trump said he would no longer certify the agreement indicating Iran was compliant with the agreement that would re-impose sanctions on the Islamic regime. Analysts estimate sanctions could cut Iranian oil exports by 350,000 bpd.
According to Chicago-based Phil Flynn, senior market analyst with The Price Futures Group, oil production from the Organization of the Petroleum Exporting Countries fell to an 11-month low of 32.14 million bpd in March, with Flynn citing a survey by S&P Global Platts. The survey highlighted an ongoing decline by OPEC member Venezuela, with oil production by the South American country at a 30-year low when low output during the industry strike in late 2002 and early 2003 is stripped out. The most recent data from the International Energy Agency shows Venezuelan oil production at 1.55 million bpd in February, which compares to production of 1.97 million bpd in 2017 and 2.24 million bpd in 2016.
NYMEX May West Texas Intermediate futures were up 69cts at $62.75 bbl at the 9:00 AM ET hour, with June Brent on ICE 89cts higher at $68.00 bbl. NYMEX May RBOB futures were up 1.18cts at $1.9665 gallon, and the May ULSD contract gained 2.36cts to $1.9814 gallon.
In early trading, the Dow Jones Industrial Average was up nearly 150 points, the S&P 500 Index 15 points higher, and the NASDAQ Composite Index gained more than 70 points. The U.S. dollar softened in index trading after reaching a 2-1/2 week high late last week.
Oil futures will be influenced by short-term outlooks on supply and demand this week that will be released by the Energy Information Administration near noon Tuesday, OPEC on Thursday and the IEA on Friday. The reports will provide the first projections on global oil demand for 2018 since an escalation in trade tensions between the United States and China following tit-for-tat retaliatory tariffs on imports between the world's two largest economies.
Brian L. Milne can be reached at email@example.com
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