Oil Higher in Monday Trade

WASHINGTON, D.C. (DTN) -- Nearest delivered New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange moved higher in early trading Monday following the sabotage attacks on Saudi oil tankers in the Persian Gulf, while the U.S.-China trade standoff limits the upside.

Nymex June West Texas Intermediate futures were up $1 near $62.65 per barrel (bbl), and ICE July Brent rallied $1.35 to near $72 bbl. Nymex June RBOB futures were 3.6 cents higher near $2.0250 gallon, and the June ULSD contract jumped 4 cents to near $2.0905 gallon.

Oil futures added to a geopolitical risk premium on Monday after two Saudi oil tankers were attacked off the coast of Fujairah in the United Arab Emirates, fueling concerns of global supply disruptions. Reuters reported four commercial vessels were targeted on Sunday at one of the largest global bunkering hubs, which lies just outside the Strait of Hormuz, which separates Gulf States from Iran. 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 threated 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.

U.S.-China trade talks ended on Friday without an agreement to break a months-long impasse between the world's largest economies. Both sides tried to prevent sentiment from deteriorating further. U.S. Secretary Treasury Steve Mnuchin said negotiations continue to be constructive. U.S. equities rallied on Friday after encouraging statements, but S&P 500 still posted the largest weekly drop of 2019 amid tariffs turbulence.

The United States raised import levies to 25% on $200 billion of Chinese products, effective as of Friday (5/10). U.S. President Donald J. Trump also threatened to impose tariffs on an additional $325 billion of China's imports, if both sides fail to reach a deal within the next three weeks.

Chinese leadership immediately vowed to retaliate. This morning, Beijing said it would raise tariffs on $60 billion of U.S. imports on June 1.

Market analysts believe that increased tariffs would eventually raise the costs for many American companies and consumers, tempering economic growth and fuel demand.

The trade turmoil has prompted hedge funds to cut their bullish bets on West Texas Intermediate futures to the lowest level in a month and raised their bets on Brent crude to the highest in nearly seven months, U.S. government data showed on Friday.

Domestically, Baker Hughes reported on Friday the number of oil rigs deployed in the United States declined by 2 last week to 805, a nearly 13-1/2 month low. Oil companies operating in the United States have removed 80 rigs from the field year-to-date, while down 11 in the second quarter and 39 against year prior. The combined U.S. oil and gas rig count is down two to 988, 57 less than during the comparable week a year ago.

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