Oil Ends the Day Lower

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange (NYMEX) settled lower today and Brent crude on the Intercontinental Exchange (ICE) ended near unchanged, posting slim gains on the effects of renewed Mideast tensions overnight in Israel.

Traders have mostly discounted the news that airstrikes by Israel took out 35 positions inside Syria, and turned their focus to reports indicating Russia is pushing for an 800,000 barrel per day (bpd) increase in a joint production agreement with the Organization of the Petroleum Exporting Countries (OPEC) while Saudi Arabia calls for an increase between 300,000 and 400,000 bpd. This follows earlier reports that energy ministers of Saudi Arabia, Russia and the United Arab Emirates were discussing a 1.0 million bpd increase in the OPEC, non-OPEC agreement.

In late 2016, OPEC and 10 non-OPEC oil producing countries led by Russia agreed to reduce production by 1.8 million bpd from October 2016 output rates to trim a global supply glut. The cuts took effect Jan. 1, 2017 and were expected to run through year end. However, with oil production from Venezuela plunging and sanctions potentially impacting Iran's oil exports, pressure on OPEC to step in and reduce supply cuts became intense, traders said. While the OPEC, non-OPEC production increases remain in flux, ongoing uncertainty regarding the effects of renewed Iranian sanctions and continued turmoil in Venezuela following recent elections remain.

Traders say it is still unclear whether sanctions recently slapped on Iran will affect oil exports anytime soon as European Union members contend Iran has not violated the 2015 nuclear accord.

India's foreign minister said India would not abide the sanctions re-imposed by the United States.

Traders also are focusing on the more concrete potential for plunging oil output from Venezuela. Crude output from the OPEC member, estimated at about 1.41 million bpd in April, is seen sliding below 1.0 million bpd by year end. Adding to a collapse in their economy that has sharply pressured crude output from the OPEC member, Venezuelan production is seen accelerating lower at a quicker pace as ConocoPhillips attempts to seize PDVSA terminal and oil storage assets in the Caribbean.

The seizures follow a court ruling against Venezuela for nationalizing assets from ConocoPhillips in 2007.

At the 2:30 p.m. ET settlement, NYMEX July WTI futures settled $1.15 barrel (bbl) lower to $66.73 bbl, edging off a $65.80 six-week low on the spot continuation chart. August WTI futures lost $1.16 bbl on the day to settle at $66.62 bbl. ICE July Brent settled at $75.39 bbl, up 9 cents, holding above Monday's $74.49 three-week spot low with a $74.54 intraday low. August Brent gained 17 cents, settling at $75.49 bbl, ahead of the July contract's expiration end-day Thursday.

NYMEX June RBOB futures settled 3.73 cents lower to $2.1441 gallon, paring a decline to a $2.1297 three-week spot low ahead of the contract's expiration at Thursday's close. July RBOB futures settled down 3.72 cents at $2.1371 gallon in the seasonally backwardated market.

NYMEX June ULSD futures settled 2.39 cents down at $2.1859 gallon after trimming a decline to a $2.1696 gallon three-week spot low. July ULSD futures settled down 2.44 cents at $2.1808 gallon ahead of the June contract's expiration Thursday afternoon.

"We expect that despite OPEC talk about more output for oil in the future it won't help us now," said Phil Flynn, senior market analyst with Chicago-based The Price Futures Group in an early Tuesday research note. "While it looks like the first hurdle of getting gasoline supplied by Memorial Day has cleared, the oil market will still be undersupplied even if OPEC and Russia add the amount of oil that they say they will."

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