Oil Slumps on Bearish Supply Report

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled sharply lower again Thursday as traders continued to sell contracts following an unexpected bearish Energy Information Administration supply report at midweek, and amid growing expectations Organization of the Petroleum Exporting Countries will loosen production cuts at their next meeting in June.

In the absence of new news headlines effecting oil supplies from the Middle East, traders say the bullish sentiment of re-imposed U.S. oil sanctions on Iran and the step up of economic sanctions on both Iran and Venezuela may not be enough to prevent prices from continuing to fall even though demand for crude and products remains robust heading into the Memorial Day weekend. This also comes as the completion of Gulf Coast refinery maintenance signals a ramp up of gasoline production in anticipation of increased summer driving.

While prices were off again Thursday, few traders expect values to decline very much given tight supplies and the expectation for increased U.S. oil sanctions on Iran and economic sanctions on Venezuela.

Uncertainty remains high regarding Iranian sanctions on oil exports because the European Union believes Iran has not violated the rules set forth in the 2015 Iran agreement. Trump, who pulled out of the accord on May 10, contends the deal was flawed from the start, allowing Iran to continue unobserved with plans to develop and deliver nuclear weapons on its neighbors, namely Israel.

"Most likely [the declines are] the result of the Russians and the OPEC folks talking about production cuts that could be walked back a bit in June," said David Thompson, executive vice president and technical analyst with Washington, D.C.-based PowerHouse, a commodity hedge and trade advisory. "It seems that the unintended cuts coming from Venezuela are enough that some of the OPEC and non-OPEC members are talking about what to do about it."

At the 2:30 PM ET settlement, NYMEX July WTI futures settled $1.13 bbl lower to $70.71 bbl, its lowest settlement price since May 11. August WTI futures also lost $1.13 bbl to $70.58 bbl, its lowest since mid-May.

ICE July Brent also continued lower, settling down $1.01 bbl at $78.79 bbl. August Brent also posted a lower settlement value, closing $1.01 lower to $78.83 bbl. While down on the day, Brent values remain near 3 1/2-year highs on ongoing Mideast and Venezuelan supply concerns. RBOB futures settled 2.63 cents less at $2.2338 gallon, while the June ULSD contract settled about 2.3 cents lower to $2.2667 gallon.

In advance of the scheduled June 22 OPEC meeting, summary data from Oil Movements indicates that crude oil exports from OPEC countries during the week ended June 9 are likely to increase by 150,000 bpd to a 24.27 million bpd four-week average, 1.4 million bpd above the comparable week in 2017.

As more evidence of continuing stout U.S. demand and economic recovery, the Association of American Railroads reported Wednesday that petroleum and petroleum product carloads were up 10.2% from the same week in 2017, to 10,655 carloads. Year-to-date carloads totaled 203,679, up 3.7% from the corresponding period in 2017.

Noting "tremendous anger and open hostility in recent statements," U.S. President Donald Trump cancelled the much-anticipate June 12 meeting with the North Korean leader in Singapore. While cancelled for now, Trump left an opportunity to reconvene the meeting and future summits up to Kim Jung Un should North Korea take more "positive steps." North Korea contends the United States is trying to "drive [them] into a corner to force [their] unilateral nuclear abandonment," similar to the outcomes seen in Libya and Iraq.

At a noon press briefing, Trump thanked staffers for ongoing work with North Korea and added that work continues on the roll back of Dodd-Frank legislation. Trump stated that sanctions and an ongoing pressure campaign will continue and that the U.S. military stands ready to respond to any reckless acts from North Korea.

Oil-related sanctions of UN Resolution 2375, passed on Sept. 11, 2017, limited North Korean crude oil and refined petroleum product imports, as well as natural gas condensate and liquid imports.

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