Oil Futures Slip on Gasoline Build

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were lower in early trade Wednesday as traders sold contracts in reaction to a larger-than-expected build in gasoline inventories reported Tuesday and because the Organization of the Petroleum Exporting Countries may take action to limit production cuts at its next meeting in June.

Media reports indicate OPEC may decide to increase current production levels at its June 22 meeting in Vienna in reaction to a perceived tightness in global oil supplies. Re-imposed Iranian sanctions, dwindling exports from Venezuela, Canada and Mexico, as well as crude prices near three-year highs are pressuring OPEC to step in and do something, traders said.

Near the 9:00 AM ET open, NYMEX July West Texas Intermediate futures were down 28 cents to $71.92 bbl, while the August contract, which became the second month out Tuesday was 29 cents less at $71.73 bbl. ICE July Brent was off 42 cents to $79.15, after failing to break through psychological resistance at $80 bbl. NYMEX June RBOB futures were down 1.42 cents to $2.2560 gal, while the June ULSD contract was off fractionally to $2.2729 gal.

Traders will look for additional pricing cues from Wednesday's 10:30 AM ET release of weekly supply data from the Energy Information Administration. Expectations call for modest draws in U.S. crude oil, distillate fuel stocks and in gasoline inventories as refinery runs increased as refiners emerge from seasonal maintenance and ramp up gasoline production in anticipation of the unofficial start of the summer driving season this Memorial Day weekend.

Earlier hints that Washington could take strong action regarding Venezuela following Sunday's sham presidential election were confirmed Monday as the Trump administration announced it had barred the purchase and sale of Venezuelan government debt, including new debt issued by PDVSA and the central bank. The United States held off on sanctions on oil sales for now, but a State Department official said those measures were "under active review." Venezuela might avoid being hit by those harsher measures because oil prices have climbed to three-year highs, and in light of perceived supply shortages, trades don't expect slashed Venezuelan exports to be further reduced.

Production in Venezuela, which derives 95% of its foreign currency earnings from oil sales, is now the lowest in decades outside of a brief strike in 2002-2003. Venezuelan oil production has plummeted to 1.41 million bpd in April, less than half the average 2013 output of 3.02 million bpd. Analysts expect the pace of decline of oil production to continue to accelerate, with Barclays projecting output to fall below 1.0 million bpd.

Traders are keeping an eye out for Iranian reaction given Monday's statement by U.S. Secretary of State Mike Pompeo, who outlined a list of 12 "demands" he deemed critical toward Iran rejoining the world community. Reaction so far within the European Community has been mixed, traders say, as many contend the requirements are designed to ensure Iran will not be in compliance and will indeed face stricter Trump Administration economic sanctions designed to cripple the Iranian economy.

Additional Iran sanctions could limit exports currently estimated at 2.4 million bpd. Iran is counting on support from European deal signatories and from China and Russia to finance the kinds of foreign direct investment that would restart its economy, which was hobbled by years of international sanctions lifted in 2015 by the Joint Comprehensive Plan of Action.

Britain, France, and Germany, the three European countries that are also party to the agreement, said they will remain in the JCPOA, as did China and Russia. Last week, the European Commission, which is the European Union's executive arm, said it would adopt regulations that would prevent European companies from complying with sanctions the United States will re-impose.

The move comes after U.S. President Donald Trump pulled out of the 2015 nuclear accord on May 10.

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