Oil Lower in Tuesday Trade

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent crude on the Intercontinental Exchange moved sharply higher in overnight trade, as Saudi Arabia signaled the extension of a production agreement by the Organization of the Petroleum Exporting Countries and non-OPEC oil producers, shrugging off President Donald Trump's demand to boost supplies.

Saudi's Energy Minister said on Tuesday the kingdom would not voluntarily raise output levels above what is set by the OPEC production cut agreement, while also indicating the accord may be extended beyond June. Al Falih told Russia's RIA News global oil inventories are still above the normal level and some kind of extension to the deal is currently warranted.

Saudi oil production in May will remain below 10 million barrels per day (bpd), with exports averaging below 7 million bpd, Al Falih said. Under the OPEC deal, Riyadh can produce up to 10.3 million bpd.

Saudi Energy Minister's comments seemed to counter Trump's claim that OPEC members are in agreement to lift oil flow. The President's remarks triggered an immediate sell-off on Friday, causing West Texas Intermediate to register its biggest daily loss in better than five months, as market participants assessed whether OPEC and its partners would lift production caps to account for sanctioned Iranian barrels.

Analysts agree Saudi Arabia could potentially increase its oil output by 500,000 bpd and still stay in compliance with the OPEC agreement, while the current estimate for the kingdom's spare capacity is at a comfortable level of 2.2 million bpd. Russia, the United Arab Emirates and Kuwait together have another 590,000 bpd of spare capacity, which could be quickly turned into emergency supplies.

In early trading, Nymex June WTI futures were up $1.20 at $64.70 per barrel (bbl), with ICE June Brent advancing $1.20 to $73.24 bbl ahead of expiration Tuesday afternoon, holding a $0.50 premium to the expiring contract. Nymex May RBOB futures were 4.35 cents higher at $2.1265 gallon, widening its premium against June to 5.75 cents ahead of expiration Tuesday afternoon. Nymex May ULSD futures were 4.0 cents higher at $2.0950 gallon, trading at a 0.030-cent premium to the June contract in front of expiration at Tuesday's closing bell.

Preliminary supply data on U.S. inventories is due for release from the American Petroleum Institute later Tuesday, while official figures from U.S. Energy Information Administration are set to be published 10:30 a.m. ET Wednesday. Market participants expect U.S. crude stocks to increase by 1.4 million bbl in the week ended April 26, while gasoline supply is estimated to have been drawn by 1 million bbl. Distillate fuel stockpiles were called 1.2 million bbl lower at 125.8 million bbl during the profiled week.

The Federal Open Market Committee begins a two-day monetary policy meeting today. The U.S. dollar is weaker in early index trading, slipping from Friday's 98.085 two-year high triggered by bullish U.S. gross domestic product data.

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