Oil Edges Off Midweek Highs

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Oil futures traded on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange edged off midweek highs early Thursday, pressured after three consecutive sharp session gains by a tweet from U.S. President Donald Trump walking back prior day comments that a U.S. missile strike in Syria in response to an April 7 chemical weapons attack on a rebel stronghold near Damascus was imminent.

Thursday morning, Trump tweeted that he "Never said when an attack on Syria would take place," suggesting one could take place very soon or not at all. Wednesday morning, Trump tweeted, "Get ready Russia because they will be coming," referring to U.S. missiles. Previously, Russia said it would shoot down any missile strike over Syria, with Russia along with Iran allies of Syrian President Bashar Assad in Syria's seven-year civil war.

The decline in oil futures Thursday morning has been limited, with geopolitical risk adding a premium to crude prices. West Texas Intermediate and Brent crude futures rallied to three-year, four-month highs on Wednesday.

In addition to the potential response to Syria for using outlawed chemical weapons, there's a strong likelihood that Trump would decertify the Iranian nuclear accord on or by a May 12 deadline set by the president for major changes to be made to the agreement. A decertification would re-impose economic sanctions on Iran that analysts estimate could reduce Iranian oil exports by 350,000 barrels per day (bpd). Iran crude oil exports have averaged near 3.8 million bpd during the first quarter.

On Wednesday, oil futures jumped after Saudi Arabia said it intercepted a ballistic missile over its capital, Riyadh. Two other missiles and drones were also shot down in the southern part of the country, with the Saudis leading a coalition in Yemen to oust Houthi rebels. The Houthis have support from Iran, although Tehran denies involvement in the conflict.

Saudi Arabia is the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC). Crude oil production in Saudi Arabia declined 46,900 bpd in March to a three-month low of 9.934 million bpd, according to OPEC in their Monthly Oil Market Report (MOMR) released Thursday morning.

Crude oil production by OPEC dropped 201,000 bpd to a 31.958 million bpd 11-month low in March, according to the monthly outlook, which cited secondary sources.

Seven of the 14-member cartel registered monthly production declines in March, including Venezuela, where an economic collapse and violent transition to a dictatorship had led to continued deterioration of its once booming oil industry. In March, Venezuelan crude production declined by 55,300 bpd to 1.488 million bpd, down 494,000 bpd or 24.9% compared with March 2017. Crude oil production in Venezuela averaged 1.544 million bpd in the first quarter, which compares with output of 1.923 million bpd for 2017, 2.159 million bpd for 2016, and 2.375 million bpd in 2015.

In its MOMR, OPEC revised modestly higher expected oil demand for this year by 30,000 bpd for annual growth of 1.63 million bpd and consumption at 98.7 million bpd. OPEC also adjusted projected 2018 non-OPEC supply up 80,000 bpd to 59.61 million bpd, up 1.71 million bpd from 2017.

Major U.S. equity indices rallied at Thursday's open after Trump's backpedaling on the Syrian response, reversing Wednesday's losses. This is the second session in which oil futures and equities have moved in opposite directions after moving in lockstep during the second quarter. The U.S. dollar strengthened, which has an inverse relationship with WTI futures.

At 9 a.m. ET, NYMEX May WTI futures were 38 cents lower at $66.44 bbl, down from Wednesday's $67.45 bbl multiyear high amid inside trade. ICE June Brent crude were down 44 cents at $71.62 bbl, dropping back from a $73.09 bbl high posted Wednesday.

NYMEX May RBOB futures were down 1.82 cents at $2.0494 gallon, sliding from a $2.0788 7-1/2 month high on the spot continuous chart. NYMEX May ULSD futures were 0.88 cents lower at $2.0839 gallon after trading at a $2.1227 gallon near 2-1/2 month spot high.

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

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Brian Milne