Oil Futures Spike on US-Mexico Progress

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied in market-on-close trade Thursday on news Mexico offered a border security deal to avoid U.S. tariffs.

West Texas Intermediate settled 2% higher on Thursday following reports the Trump administration is likely to delay tariffs on Mexico that were set to take effect Monday, June 10. According to wire services, Mexican officials pledged to deploy up to 6,000 National Guard troops to the country's border region with Guatemala in a move to halt the flow of Central American migrants heading north. The deal would also meet one of President Donald Trump's key demands, which was to give the United States authority to deport asylum seekers from Honduras and El Salvador to a third country.

Amid trade optimism, U.S. stock indexes continued higher on Thursday, and fueled a recovery in oil futures, with the Dow Jones Industrial Average finishing the session with a 181-points gain and the S&P 500 Index rose 0.6%.

U.S. Senate Republicans this week threatened to block the White House planned tariffs on Mexico after Trump administration signaled it was prepared to move ahead with import levies starting next week. Majority Leader Mitch McConnell said there was a lack of support for proposed tariffs among Republican conference in the Senate, citing economic pain for U.S. consumers and businesses.

Oil futures traded just above five-month lows for most of the Thursday's session, weighed down by concerns over surging U.S. supplies and slowing economic growth. U.S. government released another bearish supply report on Wednesday detailing large across-the-board builds in domestic crude inventories and refined products.

In technical terms, WTI futures entered into a bear market Wednesday after falling 22% from the April 23 high. Concerns over escalating global trade wars spurred investors' angst over slowing economic growth and fuel demand.

Separately, Russia said it doesn't need oil prices above a $60- to $65-per-barrel (bbl) range, as the country's processing industry is not interested in higher price levels. Russian President Vladimir Putin said on Thursday the current Brent price is "quite satisfactory" and the national budget has decent margins since it was based on $40 bbl in 2018-2019.

Rosneft's CEO Igor Sechin said in a public statement earlier this week he would demand government compensation for losses his company incurred due to obligatory production cuts imposed under Organization of the Petroleum Exporting Countries deal. Putin did not comment today on whether the country would support an extension of OPEC production cuts beyond the current agreement which ends June 30.

NYMEX July WTI futures settled $0.91 higher at $52.59 bbl, with ICE August Brent spiking $1.04 at $61.67 bbl. NYMEX July RBOB futures finished the session 1.48 cents higher at $1.7076, and July ULSD futures edged up 0.83 cent to $1.7883 gallon.

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