Oil Futures Rally to 3-Week Highs

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

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the Intercontinental Exchange Brent contract rallied to fresh three-week highs early Friday, continuing Thursday's rally as news emerged the United States was set to launch a limited military strike against Iran in retaliation for Iran's downing of an unmanned military drone.

At 9 a.m. EDT, NYMEX August West Texas Intermediate futures were up $0.40 near $57.45 a barrel (bbl), with the ICE August Brent contract gaining $0.66 to $65.10 bbl. NYMEX July RBOB futures were up 6.5cts near $1.8515 gallon, and the July ULSD contract advanced 3.55cts to near $1.92 gallon.

U.S. President Donald Trump withdrew authorization for the military strike Bloomberg reported, citing an unnamed source. The strike would have targeted radar and missile launch sites.

U.S.-Iranian tensions continue to escalate as U.S. sanctions on Iranian oil exports among other sectors chokes off finances to the Islamic Republic. The United States re-imposed sanctions on Iran following the U.S. withdrawal from the Joint Comprehensive Plan of Action in May 2018, with the withdrawal from the accord due to Tehran's destabilizing efforts in the Middle East and evidence provided by Israel that Iran continued to expand its nuclear capabilities in violation of the agreement.

Last week, the United States blamed Iran for attacking two oil tankers in the Gulf of Oman owned by Norway and Japan, providing photos showing an Iranian patrol boat and crew removing an unexploded mine on the Japanese vessel. Tehran denied it carried out the attacks.

The gasoline contract was up more than 6cts gallon in early trading, with the price boost finding additional support from a fire at the Girard Point section of the 335,000 barrels per day (bpd) Philadelphia Refining Complex, where a vat of butane reportedly exploded, forcing shut the crude section of the facility. The complex, owned by Philadelphia Energy Solutions, experienced a fire on June 10.

On the economic front, the U.S. dollar continues to weaken following the Federal Reserve's monetary policy meeting that concluded Wednesday. Fed officials kept the federal funds rate unchanged at 2.5%, but strongly suggested two rate cuts in the coming months amid low inflation and concern over economic growth seen hobbled by global trade tensions. The market overwhelmingly expects a rate cut to be announced at the July 30-31 Federal Open Market Committee's meeting.

The S&P 500 Index closed at a 2,954.18 record high Thursday, with the Dow Jones Industrial Average ending up just shy of 250 points at 26,753.17.

Flash Purchasing Managers Index composite for the United States will be issued this morning, with the market expecting a flat reading in June at 50.9, with manufacturing activity seen weakening to 50.4. Demarcation between growth and contraction is at 50.

Data released overnight indicated Japan's PMI manufacturing index flash for June softened to 49.5, the six consecutive monthly decline, with U.S.-China trade tensions weighing on the index.

The eurozone PMI composite flash increased 0.5 to 52.1 in June, slightly better than expectations, with the service sector buoying the index. Germany's PMI composite flash edged up to an as expected 52.6 in June, and France's index surged 1.6 to 52.9 for the month, well above expectations, with gains in both services and manufacturing.

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

(CZ)

Brian Milne