Oil Up on Calls for Supply Draws

OLD BRIDGE, N.J. (DTN) -- New York Mercantile Exchange oil futures and Brent crude oil on the Intercontinental Exchange settled higher Monday as traders bought contracts ahead of Tuesday's 4:30 PM ET American Petroleum Institute's weekly supply report and on the prospect for more potentially violent protests in the Middle East Tuesday.

Traders said media reports call for a substantial weekly draw on crude and oil products inventories in Tuesday's API report.

"We had the first media estimates for inventories come out expecting continued draws for the week," said David Thompson, executive vice president of Washington D.C.-based PowerHouse, a commodity hedge and trade advisory. "Distillate (futures) are once again the leader, with WTI backing off a bit from its intraday high, but closing off strong none the less."

Thompson said the market remains in a bullish mindset, as evidenced by the current Brent-WTI spread. "The spread moved out by 60 cents today (Monday)," he said. "When Brent is stronger than WTI, it tends to lead to strength in refined products."

Thompson added that some of Monday's strength in Brent may have been caused by ongoing geopolitical concerns with Israel and the Palestinians, but barring additional headlines about supply concerns from Iran, it's just more of the same.

"If Iran and Israel get at it inside of Syria that would be more a story," said Thompson.

At Monday's 2:30 PM ET settle, NYMEX June West Texas Intermediate futures were up a $0.26 to $70.96 bbl, with ICE July Brent up $1.11 to $78.23 bbl. NYMEX June RBOB futures were 1.14 cents higher at $2.2002 gallon, while the June ULSD contract jumped 2.76 cents to $2.2496 gallon. News reports claim as many as 52 Palestinians were killed and 2,300 injured Monday as a coalition of all Palestinian political factions, known as the National and Islamic Forces, called on Palestinians in the West Bank and East Jerusalem to protest the U.S. embassy relocation to Jerusalem.

Geopolitical risk and the possibility of reduced supplies have caused oil prices to remain near 41-month highs following the May 8 decision by U.S. President Donald Trump to withdraw from the 2015 nuclear pact and its potential effect on Iranian oil exports. On May 10, overnight rocket attacks on Israel from Iranian positions in Syria and the resulting strong Israeli response also are keeping a floor beneath prices.

Monday, Israel said it fired on protesters to protect its troops at the border, as many protesters they claim, attempted to breach the barrier between Gaza and Israel.

Traders remained on edge Monday as former U.S. Ambassador Dore Gold said Israel has to a right to protect its border from what he called a "mass invasion," even as Yahya Sinwar, Hamas leader in Gaza, which controls the territory, suggested more than 100,000 people could storm the fence Tuesday on what Palestinians call Nakba Day, or Day of the Catastrophe, marking the day after the anniversary of Israel's founding on May 14, 1948. Ramadan, the ninth month of the Muslim calendar, also begins Tuesday at sunset. The observation calls on Muslims to fast and refrain from sinful behavior.

Brian Whary can be reached at brian.whary@dtn.com