Oil Futures on the Decline Monday

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Oil futures on the New York Mercantile Exchange closest to delivery and the August Brent contract on the Intercontinental Exchange settled at three-day lows Monday as markets expect global oil demand to slow against forecast while Russia and the Organization of the Petroleum Exporting Countries are having a difficult time rescheduling a meeting to decide upon an extension of a six-month production agreement.

NYMEX July West Texas Intermediate settled down $0.58 at $51.93 barrels (bbl) ahead of expiration Thursday afternoon, with the August WTI contract ending at a $0.24 premium to July delivery. ICE August Brent settled down $1.07 at $60.94 bbl, with its premium to the spot WTI contract narrowing to a $9.01 bbl four-day low.

NYMEX July ULSD futures settled down 2.99 cents at $1.7995 gallon, with the July RBOB contract ending 4.17 cents lower at $1.6908 gallon.

A rollover of 1.2 million barrels per day (bpd) in production cuts by OPEC+ for the second half of 2019 is widely expected, but reaching that consensus is met with opposition in when to meet. OPEC previously scheduled June 25-26 to meet, but now wants to delay the meeting until after the June 28-29 G-20 meeting when U.S. President Donald Trump and China's President Xi Jinping are expected to meet, although an official announcement of a meeting between the two leaders has not been issued. Trump said he would impose 25% tariffs on $300 billion of Chinese imports not subject to a duty now if Xi declines a meeting.

Before reaching a production agreement, OPEC+ wants to know how that meeting will play out, with an escalation in the U.S.-China trade war seen further slowing global economic growth. White House officials have downplayed expectations that a bilateral trade agreement would emerge later this month.

According to Platts, Saudi Arabian Energy Minister Khalid al-Falih said there is one member of the group that has not agreed to a change in the date, while Reuters indicates the member is Iran. Iran wants to maintain the current meeting schedule, with the country's oil minister indicating he would not be available for a July 3-4 meeting as suggested offering a July 10-12 timeline instead.

Last week, the United States said Iran was responsible for attacks on two tankers carrying naphtha and methanol in the Gulf of Oman near the entrance of the Strait of Hormuz. Tehran has loudly denied the accusation, while over the weekend indicated it is 10 days away from exceeding its international limit on uranium inventory if the 2015 nuclear agreement isn't saved. The United States pulled out of the accord in May 2018.

The tanker attacks have hiked the cost of shipping in the Persian Gulf region, heightening the geopolitical risk premium in oil prices. About 30% of seaborne crude and oil products move through the region, prompting al-Falih over the weekend to call on countries to jointly ensure safe shipping lanes.

Market sentiment is bearish over worries about demand, with the International Energy Agency on Friday downgrading global oil demand expectations for a second month, with annual growth now seen at 1.2 million bpd.

Noncommercials continue to reduce long positions in WTI and RBOB futures, while expanding a net-short ULSD stance to a nearly two-year high despite global regulations to take effect Jan. 1, 2020 requiring a reduction in sulfur content in marine fuels. The upcoming International Maritime Organization regulations will make marine fuel requirements similar to ultra-low sulfur diesel that is seen driving demand for the middle of the barrel sharply higher.

Analysts note consumption expectations for diesel fuel would be sharply reduced with a slowing global economy, mitigating the effect of the IMO demand pull. In the United States, diesel fuel is primarily consumed in industrial and commercial sectors.

The Dow Jones Industrial Average and S&P 500 Index were holding onto small gains in later afternoon trading and the U.S. dollar eased from a two-week high ahead of Tuesday's start to a two-day Federal Open Market Committee. The market increasingly wants a rate cut, but several analysts have said there is no need to reduce the federal funds rate now at 2.5%.

Brian L. Milne can be reached at brian.milne@dtn.com


Brian Milne