OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange (ICE) continued higher in early trade Monday, as U.S. economic sanctions on Iran begin today cutting its ability to deal in U.S. dollars, even as media reports reveal Saudi Arabian oil output declined in July.
Traders said a Reuters report detailing July Saudi oil output caught the market by surprise as output from the largest oil producer from the Organization of Petroleum Exporting Countries (OPEC), fell 200,000 barrels per day (bpd) in July, to 10.29 million bpd. The Reuters report counters a Friday survey from S&P Global Platts Friday showing Saudi output up 240,000 bpd in July, while OPEC output rose 340,000 bpd to 32.66 million bpd. Following a May decision by the Trump administration to pull out of the 2015 Iran nuclear accord, Iran will not be permitted to deal in U.S. dollar denominations, the basis for current world oil sales. Later specific oil sanctions that are set to begin in November are expected to further slash Iranian oil sales.
A combination of concern about Saudi-lead OPEC and its non-OPEC contingent's ability to make up for continuing world production shortfalls amid a growing trade war with China, has resulted in a recent increase in trader short-covering, analysts say.
"I think there's just been a lot of supportive news starting with the lower rig count Friday also a report that the Saudi's produced less oil in July which caught the market by surprise," said Phil Flynn, senior market analysts with Chicago-based Price Futures Group. "Iranian sanctions also go into play today, so there's increased geopolitical risk which is making it more dangerous to be short. The economy in the U.S. is also humming, which could signal higher demand."
On Friday Baker Hughes reported the U.S. rig count to Aug. 3, fell for the second time in three week by two rigs to 859 rigs, while U.S. economic growth was assessed last week at 4.1% growth rate for the second quarter.
In early trading at the formal session open, the September NYMEX WTI contract stood 69 cents barrel (bbl) higher at $69.18 bbl, while the October ICE Brent contract was up 49 cents to $73.70 bbl. September RBOB futures were marginally higher at $2.0639 gallon, and the September ULSD contract was 1.66 cents in the plus column trading $2.1435 gallon.
Brian Whary can be reached at firstname.lastname@example.org
© Copyright 2018 DTN/The Progressive Farmer. All rights reserved.