Oil Futures End Mixed on OPEC Supply

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent crude on the Intercontinental Exchange settled Monday's session mixed with West Texas Intermediate on track to gain more than 5% in April. Markets are assessing availability of supply after the U.S. decision to tighten sanctions on Iran.

Oil futures moved mixed on Monday after President Donald Trump called on Organization of the Petroleum Exporting Countries and its allies to lower fuel prices, putting pressure on the Saudi-led group to increase the oil flow. The president's remarks triggered a selloff on Friday as market participants assessed whether OPEC and its partners would lift production caps to account for the sanctioned Iranian barrels.

Analysts indicate Saudi Arabia could increase its oil output by 500,000 bpd and still stay in compliance with OPEC+ agreement, while the current estimate for the kingdom's spare capacity is at the comfortable level of 2.2 million bpd.

According to Wall Street Journal, Russia, the United Arab Emirates and Kuwait together have another 590,000 bpd of spare capacity, which could be quickly turned into emergency supplies. Amid U.S. pressure on OPEC members to relax production caps, a senior Iranian official said on Monday it would be impossible to immediately replace Iran's oil exports. Goldman Sachs estimates as much as 1.3 million bpd of Iranian crude could be lost due to the latest shift in U.S. foreign policy.

At the Belt and Road forum in Beijing, Russian President Vladimir Putin said OPEC members remain committed to the production cut agreement despite supply disruption risks on multiple fronts. He emphasized, however, that Russia is ready to meet China's growing oil demand in the wake of sanctions on oil exports from Islamic Republic of Iran.

China is Iran's largest crude oil customer, where imports averaged 585,400 bpd in 2018, or 6% of China total crude oil demand. According to ESAI Energy, Russia's crude oil exports have already reached a multi-year high of 5.7 million bpd in April, which was accompanied by higher flow of Ural crude into Asian market.

Russian authorities gave no clear indication so far of the approach the country will take on output volumes in the second half of 2019, citing ongoing uncertainty in the market.

In U.S.-China news, Treasury Secretary Steven Mnuchin said both countries are in the final stages of trade negotiations, setting up the framework ahead of this week's meeting in Beijing. U.S. Trade Representative Robert Lighthizer and Mnuchin will be in Beijing for talks beginning Tuesday to be followed by a visit by Chinese Vice Premier Liu He in Washington for more discussion starting on May 8.

The Federal Open Market Committee begins a two-day monetary policy meeting Tuesday. The U.S. dollar weakened in index trading Monday following a surge to a 98.085 two-year high Friday triggered by Commerce Department data showing U.S. first quarter gross domestic product grew at a 3.2% annual rate, well above expectations.

NYMEX June WTI futures settled $0.20 higher at $63.50 bbl after posting 3.2% decline on Friday, while ICE June Brent kept to the downside, moving $0.11 lower to finish the session at $72.04 bbl. NYMEX May RBOB futures settled 1.78cts lower at $2.0828 gallon, reversing from the highest settlement since the start of the fourth quarter at $2.1321 gallon registered last week. NYMEX May ULSD futures settled 0.37cts higher at $2.0549 gallon, although down from a $2.1242 gallon better than 5-month spot high traded last week.

ICE June Brent, Nymex May RBOB and ULSD contracts expire at Tuesday's closing bell.

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