Oil Futures Settle Lower on Trade

WASHINGTON, D.C. (DTN) -- Nearest delivered New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange turned lower Monday afternoon, with West Texas Intermediate falling nearly 1% in market-on-close trade, as U.S./China trade tensions outweighed geopolitical risk in the Middle East.

Oil futures slid on Monday weighed down by an aggressive selloff in U.S. equity markets after China raised the stakes in the ongoing trade war. China announced it would hike import duties to 25% on $60 billion of U.S. goods, including liquefied natural gas and agricultural produce. Despite attempts by U.S. officials to calm markets, the Dow Jones Industrial Average plummeted more than 600 points on Monday, while the S&P 500 fell 2.4%, registering the largest daily drop since Jan. 3.

Larry Kudlow, director of U.S. National Economic Council, said there was "strong possibility" that President Donald Trump would meet China's President Xi Jinping to save the deal at the G-20 summit in Japan next month. U.S./China trade talks ended on Friday without a comprehensive trade deal due to Beijing reportedly "reneging" on previous commitments amid ongoing trade negotiations.

The White House was expected to release details of a tariffs increase on further $300 billion of Chinese imports that it wanted to hit with 25% levy Monday, but no announcement was made as of late afternoon.

WTI was also pressured by surging crude production from the seven tight oil basins in the United States, according to Energy Information Administration data released Monday afternoon. EIA projects Permian output is set to increase by 56,000 bpd to 4.103 million bpd from May to June, accounting for 68% of growth in U.S. shale production. U.S. total shale production is expected to average 8.495 million bpd in June, up 83,000 bpd from May.

The lower session comes after oil futures staged a sharp rally overnight into early Monday trading amid increasing geopolitical risk in the Persian Gulf. Saudi Arabia said on Sunday two of its oil tankers were attacked off the coast of United Arab Emirates in close proximity to Iranian waters. Iran's foreign minister called the incident "worrisome and dreadful," while demanding international investigation into the matter. The incident follows the U.S. decision to deploy a carrier strike group and bombers to the region after Iran reportedly threatened security of American troops in the region. Tehran announced last week it resumed high-level enrichment of uranium as it pulls back from the Obama-era 2015 nuclear agreement.

NYMEX June WTI futures settled $0.62 lower at $61.04 bbl, and ICE July Brent dipped $0.39 to $70.23 bbl. NYMEX June RBOB futures settled 2.54cts lower at $1.9637 gallon, and the June ULSD contract slipped 1.20cts to $2.0384 gallon.

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