Oil Futures Sink on Friday

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange traded at better than 2-1/2 month lows in early hours Friday on news the Trump administration imposed 5% tariffs on all imports from Mexico, while surging crude production in the United States stoked fear of an oversupplied market.

Near 9 a.m. ET, NYMEX July West Texas Intermediate futures were down $1.40 near $55.20 per barrel (bbl), with ICE July Brent down $2 near $64.85 bbl ahead of expiration Friday afternoon, trading at a roughly $1.10 bbl premium to the August contract. NYMEX June RBOB futures were down 4.15 cents near $1.8372 gallon ahead of expiration Friday afternoon, holding a 1.8-cent premium to the July contract. NYMEX June ULSD futures were down 3.5 cents at $1.8800 ahead of expiration at the close, with July delivery holding a 0.035-cent premium to the expiring contract.

Oil futures slumped on Friday after the United States hiked tariffs on all goods imported from neighboring Mexico, with an option to increase that level gradually. Trump administration said the 5% import levy would go into effect on June 10 and would be increase to 10% on July 1 if Mexico does not comply with U.S. demands to halt illegal immigration at the southern border. If the country continues to not act, the White House said, the tariff will increase to 15% on Aug. 1, 20% on Sept. 1 and 25% on Oct. 1.

Goldman Sachs said on Thursday the tariffs would be "highly disruptive," which would also affect the enactment of the new U.S.-Mexico-Canada Agreement. Mexico is one of the largest U.S. trading partners, with the total traded goods and services between the two countries estimated at $671 billion in 2018, according to U.S. Trade Department.

The United States is already embroiled in escalating tariff dispute with China, which accused the White House on Thursday of "economic terrorism."

The comments from China officials came after Beijing announced this week it would stop purchases of U.S. soybeans and threatened to cut off exports of rare-earth materials to the United States, which sent global equities and commodity assets sharply lower this week.

In oil markets, U.S. government released on Thursday another set of bearish weekly supply figures, detailing a smaller-than-expected drawdown in domestic inventories while output was once again higher, reaching a record 12.3 million barrels per day (bpd) last week. According to the data, U.S. crude supplies remained near a 20-month high last week, while still 5% above the five-year average for this time of the year.

"Despite efforts by the Organization of the Petroleum Exporting Countries to reduce global oil inventory, commercial crude stockpiles in the United States have expanded by 27 million bbl in the second quarter," DTN's Brian Milne said.

The OPEC agreement to withhold 1.2 million bpd from the global market is set to expire at the end of June, with the participants expected to debate the effectiveness of the production cuts and to consider an extension of the agreement June 25-26.

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