Oil Futures Mixed on Tuesday

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent on the Intercontinental Exchange moved shallowly mixed in early trading following a decline on Monday, as market concerns over global oil demand counter heightened rhetoric regarding recent Middle East developments and expectations the Organization of the Petroleum Exporting Countries will rollover production cuts.

At 9 a.m. ET, NYMEX July West Texas Intermediate futures were up $0.35 near $52.30 per barrel (bbl) ahead of expiration Thursday afternoon, with the August contract holding a roughly $0.25 premium to the expiring contract. ICE August Brent futures were up $0.15 near $61.10 bbl. NYMEX July RBOB futures were down 0.45 cents near $1.6860 gallon, with July ULSD futures flat at $1.7995 gallon.

Iran appears to have prevailed in OPEC's decision on when to meet next after OPEC and Russia decided to delay a scheduled June 25-26 meeting until after the G-20 meeting on June 28-29 in Japan, initially targeting July 3-4. Iran wanted the meeting to remain as scheduled, but later suggested July 10-12. Reuters reports sources indicating the advisory Joint Ministerial Monitoring Committee is now expected to meet on July 10, OPEC ministers July 11, and a combined OPEC, non-OPEC meeting on July 12.

Earlier Tuesday, Russian Energy Minister Alexander Novak said on Twitter it was too early to make a decision on extended production cuts because of market uncertainties, according to Reuters. Novak said such a decision should be made in late June or early July.

Moscow has been noncommittal on whether it would agree to a 1.2 million barrels per day (bpd) rollover of production cuts for the second half of 2019, with Russian oil companies complaining of losing market share to the United States. On Monday, the Energy Information Administration reported oil production in seven key shale regions within the country increased 38,000 bpd to a fresh record high at 8.45 million bpd in June, and projects output to expand another 70,000 bpd in July. Combined U.S. oil production ended May at a record 12.4 million bpd.

Oil ministers and Russia want to gauge developments between the United States and China following an escalation in their trade war in the second quarter, with U.S. President Donald Trump expected to meet China's President Xi Jinping at the G-20 meeting, although a meeting has not been officially disclosed. Trump has threatened to impose 25% tariffs on Chinese imports not already taxed if Xi declines to meet with him later this month.

As the trade row between the world's two largest economies continues, shipping costs in the Persian Gulf region are skyrocketing following two tanker attacks last week that the United States implicated Iran in having conducted; providing detailed photos of an Iranian patrol boat removing an unexploded mine off of a Japanese tanker that was struck.

U.S. Secretary of State Mike Pompeo has called for the world to unite against Iran in an effort to change its behavior, and the Pentagon announced an additional 1,000 troops will be deployed to the Middle East because of Iran's provocative behavior.

In a Times interview Monday, Trump downplayed the incident as minor, but said the United States would go to war with Iran over its nuclear program. Tehran is attempting to maintain the Joint Comprehensive Plan of Action negotiated by the Obama administration that Trump withdrew from in May 2018, reinstating sanctions on an array of Iranian exports, including oil. Tehran said it would exceed the level of uranium stockpiles allowed under the accord in 10 days if European countries that are still part of the agreement don't reverse U.S. sanctions against Iran.

The Federal Open Market Committee Tuesday begins a two-day meeting over monetary policy, with the market increasingly wagering on two cuts in the federal funds rate now at 2.5% before the end of 2019. A rate cut is not expected to be announced Wednesday, and several banks have indicated a rate cut is not warranted.

The FOMC meeting will also conclude with the Federal Reserve's quarterly update on economic projections. In March, the central bank projected U.S. gross domestic product growth for 2019 at 2.1%, a downgrade from its December outlook for annual growth of 2.3%.

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

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Brian Milne