Oil Lower in Monday Trade

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

CRANBURY, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange moved lower early Monday following last week's price surge, as traders return focus to climbing U.S. oil production after an allied missile strike hitting chemical weapons facilities in Syria suggested a limited U.S. response to the Syrian regime's use of outlawed chemical weapons.

Friday evening, the United States in concert with military forces from France and Great Britain fired more than 100 missiles at three facilities in Syria that store and research chemical weapons in response to an attack by forces loyal to Syrian President Bashar Assad on a rebel enclave near Damascus using chlorine barrel bombs and sarin that evidence suggests targeted rebel fighters and civilians alike.

Reports indicate U.S. President Donald Trump wanted a more expansive attack, while U.S. Defense Secretary James N. Mattis pushed for a limited response in Syria, where Russian and Iranian forces are located in their support of Assad.

Oil futures rallied sharply last week as a geopolitical risk premium embedded in oil prices widened, with short covering continuing the advance through Friday as the market awaited the U.S. response to the chemical attack.

West Texas Intermediate futures traded at a $67.76 barrel (bbl) three-year, four-month spot high of $67.76 bbl on Friday, while advancing $5.33 bbl on the week. Brent crude traded at a $73.09 bbl three-year, four-month spot high midweek, and gained $5.47 on the week.

NYMEX RBOB futures surged to a $2.0788 gallon 7-1/2 month high on its spot continuous chart midweek last week, and gained more than 11.0 cents on the week. May ULSD futures rallied to a $2.1227 gallon 2-1/2 month spot high, while increasing its value 14.24 cents gallon on the week.

Oil traders are consolidating last week's gains in early trading Monday, while turning their focus to climbing U.S. oil production, which reached a fresh record high during the first week of the second quarter at 10.525 million barrels per day (bpd), according to data from the Energy Information Administration (EIA).

On Friday, Baker Hughes reported a seven-rig increase in the U.S. oil rig count to a better-than three-year high of 815 during the second week of April, which follows an 11-rig gain in the prior week. Producers have deployed 68 rigs in the U.S. oil patch so far this year, while hedging at a record high rate. These gains are expected to continue to boost U.S. oil output through the summer months. EIA projects domestic oil production would average 10.7 million bpd in 2018.

At 9 a.m. ET, NYMEX May WTI futures were down 61 cents at $66.78 bbl, with ICE June Brent 56 cents lower at $72.02 bbl. NYMEX May RBOB futures were 1.68 cents lower at $2.0486 gallon, with the May ULSD futures down 1.41 cents at $2.0861 gallon.

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

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Brian Milne