Oil Futures End Higher

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 higher Monday, reversing earlier declines as contracts touched multi-week lows overnight on expectations the Organization of the Petroleum Exporting Countries and non-OPEC leader Russia would decide to boost supply Friday at OPEC's biannual meeting in Vienna.

Trader short-covering intensified as trading advanced through midday following media reports that several OPEC members -- namely Iran, Iraq and Venezuela -- were prepared to vote to leave OPEC's existing 1.2 million bpd production cut in place. A later CNBC news story from Goldman Sachs sealed the fate for higher futures settlements as the firm predicted tight world oil supplies would continue on reduced supplies from Iran and Venezuela, which in their view could cause oil prices to rally in the second half of 2018.

"Our updated global supply-demand balance continues to point to further declines in inventories and higher oil prices in the second half of 2018," Goldman Sachs said in an interview with CNBC, reaffirming its previous forecast for Brent at $82.50 bbl during the summer.

Analysts at Goldman said the prospect of OPEC producers announcing an increase to crude production levels later this week could actually have a bullish impact on oil prices. "We continue ... to view the risks to this forecast as skewed to the upside, even if concerns over demand and higher OPEC production weigh on prices near term," Goldman said.

While Goldman predicted OPEC and Russian production would increase by 1.0 million bpd by the end of 2018, and by another 500,000 bpd in the first six months of 2019, they cautioned the impact of such a move would likely be offset by more supply disruptions from Venezuela and Iran.

"Our updated fundamental oil balance shows ... that the oil market remains in deficit with resilient demand growth and rising disruptions requiring higher core OPEC and Russia production to avoid a stock-out by year-end," Goldman Sachs said.

OPEC and 10 non-OPEC oil-producing countries led by Russia reached an agreement in late 2016 reducing their production 1.8 million bpd from the October 2016 output rate that took effect Jan. 1, 2017, and was set to run through year's end.

The production cuts successfully cut down a burgeoning global supply glut, while economic collapse in Venezuela threatened to create a widening supply deficit. Those concerns grew after the United States re-imposed sanctions on Iran that take effect later this year that could, suggests the International Energy Agency, reduce Iran's crude exports by as much as 1.2 million bpd.

During the first five months of 2018, OPEC data reveals Venezuela production is down 353,000 bpd to 1.392 million bpd.

NYMEX July West Texas Intermediate futures reversed off a $63.59 10-week low on the spot continuous chart to settle up 79cts at $65.85 ahead of the contract's expiration at Wednesday's close, while August WTI futures rose 84cts to $65.69 bbl.

ICE August Brent rose $1.90 bbl to a $75.34 bbl settlement after reversing off a $72.45 nearly seven-week low on the spot continuous chart, while September Brent finished $1.86 bbl higher at $74.94 bbl.

NYMEX July RBOB futures off a 10-week spot low of $2.0055 gallon to settle 3.14cts higher to $2.0546 gallon, while the August RBOB contract gained 3.26cts to $2.0440 gallon.

July ULSD rallied 4.46cts gallon to settle at $2.1316 gallon after reversing off a $2.0658 nine-week low on the spot continuous chart, while the August USLD contract settled 4.36cts higher at $2.1337 gallon.

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