Oil Lower in Monday Trade

OLD BRIDGE, N.J. (DTN) --- New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) futures reversed lower following Friday's establishment of fresh multi-year and multi-month highs amid media reports that Saudi Arabia is boosting production in July in an effort to counter lost exports from Venezuela and Iran.

Analysts also point to this week's shortened July Fourth holiday trading week as prompting traders to take profits early following Friday's supply-inspired rally, which saw WTI crude reach a 3-1/2 year high and Brent crude inch ever closer to the key $80 barrel (bbl) mark.

"It looks like since we ended the month and the quarter Friday, right now we're seeing a correction in the market with the fourth right in the middle of the week," said Elaine E. Levin, president of Washington, D.C.-based Powerhouse, a commodity hedge and trade advisory. "We saw over the weekend that President Trump tweeted about getting an additional 2 million barrels per day (bpd) of Saudi Arabian oil back onto the market. While the Saudis agreed, most think the request is wishful thinking that just isn't going to happen as you can't just ramp up production that fast," she said. "While producers don't want the market to overheat, they also don't want to crash the market either."

A Reuters report indicates Saudi Arabian oil output is up 700,000 bpd from May, and might be approaching a record high 10.72 million bpd last seen in November 2016. The de-facto Organization of the Petroleum Exporting Countries' (OPEC) leader said last week it would raise July production to 11.0 million bpd effective July 1, up from May's 10.03 million bpd.

The output boost followed the recent meetings by OPEC and non-OPEC oil producing countries, which include Russia in which the countries agreed to increase production to comply with their 1.8 million bpd agreement reducing output. Involuntary production cuts in Venezuela especially, as well as in Libya, Angola and Nigeria have reduced OPEC oil production to well below their production targets. Re-imposed U.S. sanctions on Iran are also seen sharply reducing Iranian oil exports, which was reported by the Wall Street Journal to have dropped from 2.7 million bpd in May to 2.2 million bpd in June.

Analysts caution the sharply higher production rate could eliminate as much as 40% of Saudi Arabia's spare production capacity, reducing the Saudi spare production buffer down to about 1.5 million bpd.

Near 9 a.m. ET, the NYMEX August WTI futures contract was down 10 cents bbl to $74.05, while the September contract was 24 cents lower at $72.22 bbl. ICE September Brent was down 66 cents $78.57 bbl, while the October contract was off 63 cents at $78.23 bbl.

NYMEX August RBOB contracts were 1.83 cents gallon lower at $2.1329 gallon, while September RBOB was 1.84 cents lower at $2.1137 gallon. The August ULSD contract was 1.69cts lower at $2.1928 gallon, while September traded 1.71 cents down at $2.1991 gallon.

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