Oil Futures Rally Tuesday

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and the Brent contract on the Intercontinental Exchange surged Tuesday, with West Texas Intermediate and Brent settling at 1 1/2-week highs, as markets rallied following a tweet by U.S. President Donald Trump that he would meet with China's President Xi Jinping in Japan later this month.

"Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting," said Trump on Twitter, sparking rallies in oil and equities.

Chinese state media confirmed the planned meeting between Trump and Xi, according to Reuters. The G-20 Summit will be held in Osaka, Japan, June 28-29.

The resumption of talks excited expectations that the world's two largest economies would reach a bilateral trade agreement after an impasse between the two parties suggested an extended trade war that some feared would steer the global economy into recession, dampening demand for oil.

Trump's tweet followed earlier news by European Central Bank President Mario Draghi, in which the ECB president signaled the potential for new monetary stimulus to be discussed at the bank's next policy meeting in July. Draghi's telegraph came ahead of a two-day monetary policy meeting by the Federal Open Market Committee when Federal Reserve officials are expected to discuss a rate cut. Markets aren't pricing in a rate cut to be announced Wednesday afternoon, but have signaled expectations for two rate cuts before year's end.

NYMEX July WTI futures settled up $1.97 at $53.90 per barrel (bbl) with the August contract ending at a $0.21 bbl premium. July WTI futures expire Thursday afternoon. ICE August Brent settled $1.20 higher at $62.14 bbl, with the contract's premium over spot WTI futures narrowing to an $8.24 bbl two-week low. NYMEX July RBOB futures settled 3.06 cents higher at $1.7214 gallon, and July ULSD futures advanced 2.83 cents with a $1.8278-gallon settlement.

In late trading, the Dow Jones Industrial Average was up nearly 350 points with the S&P 500 Index gaining 0.9%. The U.S. dollar edged 0.101 higher to 97.153 after gapping down in index trading, finding support at the 96.821 100-day moving average.

Concern over an economic slowdown weighed on oil futures, offsetting heightening geopolitical risk following last week's attacks on two fuel tankers in the Gulf of Oman. The United States said Iran was responsible for the brazen attacks, which Tehran vehemently denied, with shipping rates rocketing higher on the latest development.

The Organization of the Petroleum Exporting Countries, Russia and nine additional non-OPEC oil producers are likely to meet July 10-12 to discuss oil market conditions with expectations the 24 countries would agree to a rollover of production cuts. OPEC and Russia sought a delay in their meeting initially planned for June 25-26 until after the G-20 meeting to better gauge U.S.-China trade developments.

Reports indicate Saudi Arabia will push for stronger compliance after the kingdom over-complied with its quota to ensure credibility. Despite 5-1/2 months of production cuts by OPEC+, U.S. oil inventory grew in the second quarter to reach a 20-month high.

Saudi Arabia has reportedly cut production again in June, with output in May at a 9.69 million barrels per day (bpd) five-year low. Under the OPEC+ accord, Saudi Arabia is allotted a 10.311 million bpd production rate.

Tuesday's higher settlements come in front of weekly supply data to be released Tuesday afternoon by the American Petroleum Institute and Wednesday morning by the Energy Information Administration.

The market widely expects a drawdown in U.S. commercial crude supply and builds in oil products occurred last week. Estimates are for crude stocks to have declined 1.6 million bbl, with gasoline inventory expected to have increased by 550,000 bbl and distillate stocks by 1 million bbl.

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

(BAS)

Brian Milne