CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Intercontinental Exchange Brent crude settled at one-month lows or better, as concern world oil demand could slow sharply because of an escalation in a trade war between the United States and China overshadowed heightening geopolitical risk in the Middle East.
NYMEX West Texas Intermediate futures settled at the lowest price point of the second quarter at $61.40 per barrel (bbl), down $0.85, with the June contract holding above Monday's $60.04 bbl one-month spot low. ICE July Brent crude settled $1.36 lower and below $70 bbl at a $69.88 bbl one-month low settlement on the spot continuous chart.
Gasoline futures again sold off sharply, with June RBOB settling down 4.79 cents at a $1.9487 one-month low settlement on the spot chart. June ULSD futures slumped 3 cents to a $2.0376 gallon settlement, also a one-month spot low.
Oil futures sold off with major U.S. equity indices, with the Dow Jones Industrial Average tumbling more than 550 points and the S&P 500 Index at a 2% loss late afternoon before paring the decline at the close, as sharp rhetoric between U.S. President Donald Trump and Chinese media suggest a bilateral trade agreement between the world's two largest economies is miles away. Only last week expectations grew that months of negotiations could lead to a trade deal as soon as this week.
U.S. officials have charged Beijing with walking back agreed to terms that prompted Trump to announce an escalation in tariffs on all Chinese goods to 25% to take effect Friday. Chinese media promised not to give an inch.
In a hopeful note, China's Commerce Ministry announced early Tuesday that Vice Premier Liu He would travel to Washington, D.C., this week as previously scheduled for trade talks on Thursday and Friday.
A day after U.S. officials announced the deployment of the USS Abraham Lincoln carrier strike group to the Middle East, media reports indicate four B-52 bombers will be deployed in the oil rich region in response to threats against U.S. troops stationed in Iraq that could come under attack from Iranian forces.
One year earlier, Trump pulled the United States out of the 2015 Iranian nuclear accord that prompted the re-imposition of sanctions on Iran. The United States directly targeted Iranian oil exports with sanctions in November, and in late April announced there would be no extension of waivers to certain countries, including India, China and Turkey. The Trump administration has also labeled Iran's Revolutionary Guard Corps as a terrorist organization. Iran's President Hassan Rouhani said Tehran would reduce some of its commitments under the nuclear accord.
As the threat of war grew, reports indicate Saudi Arabia would increase crude exports to Asia to offset lost supply from Iran.
In its most recent monthly outlook released this afternoon, the Energy Information Administration revised down world oil supply for this year and 2020 largely because of a production decline by Organization of the Petroleum Exporting Countries, and now sees global demand for oil outpacing supply.
EIA revised world oil production for this year down 410,000 barrels per day (bpd) from April's projection to 101.11 million bpd, with 2020 output adjusted 180,000 bpd lower to 103.03 million bpd.
"Given the expected delayed response of global crude oil production to current oil market fundamentals, EIA now expects average net global oil inventory withdrawals of about 0.4 million b/d during the second and third quarters of 2019," said EIA in their Short-term Energy Outlook.
Estimates for the weekly change in U.S. oil inventories are due out shortly from the American Petroleum Institute and at 10:30 a.m. EDT Wednesday from the EIA. The market expects a modest 250,000 bbl build in commercial crude supply to have occurred during the week ended May 3. Gasoline supply is expected to have been drawn down by about 1.5 million bbl and distillate stocks to have declined by 1 million bbl for the week profiled.
Brian L. Milne can be reached at firstname.lastname@example.org
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