Oil Lower in Friday Morning Trade

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Intercontinental Exchange Brent crude moved lower in early trading Friday, dropping back from multi-month highs on profit-taking while the market reassesses the global oil supply disposition.

Heading towards 9:30 a.m. ET, Nymex June West Texas Intermediate futures were down $0.90 near $64.30 per barrel (bbl), with ICE June Brent $1 lower at $73.35 bbl. Nymex May RBOB futures slid 1.85 cents to about $2.1135 gallon, and May ULSD futures declined 3.3 cents to near $2.0650 gallon.

WTI and Brent crude rallied to nearly six-month highs early this week after the United States caught the market off guard in announcing its "maximum pressure" policy regarding Iran, indicating it would not extend waivers from U.S. sanctions that expire on May 2.

Brent was further boosted midweek on news refiners in eastern Europe were halting shipments of Russian crude on a key pipeline because of contamination issues effecting 700,000 barrels per day (bpd) of oil flow, triggering a short squeeze. Russia said it would ship clean fuel beginning April 29.

While the contaminated Russian oil is a short-term bullish development, the market is considering the effect of U.S. policy towards Iranian oil exports.

In announcing their goal to drive Iranian oil exports to zero, the U.S. State Department said the market has enough oil to meet demand, with Saudi Arabia and the United Arab Emirates agreeing to cover any shortfalls caused by lost Iranian oil sales. The International Energy Agency also said the global oil market is well supplied, with spare capacity "comfortable" at 3.3 million bpd.

Additionally, some large buyers are expected to continue imports of sanctioned Iranian barrels, according to market analysts. FGE consultancy projects around 400,000 to 500,000 bpd of crude and condensate will continue to be exported from Iran, with China and potentially Turkey being the primary markets. U.S. Special Representative for Iran disagrees, indicating on Thursday he was confident China could find alternative suppliers. Meanwhile, U.S. crude supply is at an 18-month high.

The Bureau of Economic Analysis was the latest unexpected development this week, reporting in its first of three estimates this morning that U.S. gross domestic product in the first quarter grew at a 3.2% annualized rate, topping expectations by a full 1%, and following a 2.2% growth rate in the fourth quarter.

The U.S. dollar spiked to a 98.085 new two-year high on the GDP surprise, but quickly declined as the quicker growth rate could prompt the Federal Reserve to hike interest rates. Ahead of the GDP report, an overwhelming market consensus projected the central bank would sit tight on rates through 2019 and beyond. A higher interest rate would slow economic growth.

Liubov Georges can be reached at liubov.georges@dtn.com