Oil Futures See Gains on Monday

WASHINGTON, D.C. (DTN) -- Nearest delivered New York Mercantile Exchange oil futures and Brent on the Intercontinental Exchange settled higher on Monday, with both West Texas Intermediate and Brent paring gains in market-on-close trade. Organization of the Petroleum Exporting Countries reached an agreement to extend 1.2 million barrel-per-day (bpd) production cuts for nine months, even as Iran disputes cooperation with non-OPEC allies.

NYMEX August WTI settled $0.62 or 1.1% higher at $59.09 per barrel (bbl) after trading over $60 bbl earlier in the session. ICE September Brent crude gained a modest $0.32 to settle at $65.06 bbl. NYMEX August RBOB futures settled 3.39 cents higher at $1.9305 gallon, while NYMEX August ULSD futures were up 1.44 cents to finish the session at $1.9538 gallon.

WTI and Brent gave up earlier gains after OPEC's 14 member nations failed to sign a charter of cooperation with Russia and nine other non-OPEC partners, potentially complicating coordinated oil policy over the next several months. OPEC's long-discussed charter was intended to formalize its partnership with the market’s heavyweight, Russia, but was vetoed Monday morning by Iran, citing “dangerous practices” that threaten the survival of the cartel itself.

"Without the unity of OPEC, it is meaningless to plan cooperation between OPEC member states and non-members," Zanganeh said, according to Iran's oil ministry. "Iran supports cooperation with oil exporters outside OPEC, but as long as some members of OPEC have tensions against other members, such as Iran, OPEC's understandings with non-OPEC are meaningless and there is no room for cooperation."

The latest comments from Iran’s official offer rare insight into discourse among OPEC members over the growing influence of Russia within the cartel.

In the two-year period since OPEC formed an alliance with Moscow, some OPEC members were marginalized and their voices diminished, as Saudi Arabia seems to prioritize its partnership with Moscow above other members.

“Iran is not threatening to leave OPEC, but I believe OPEC is going to die with these practices,” said Iran’s Energy Minister on Monday.

The fact that Russia’s President Vladimir Putin announced this weekend an extension of the OPEC+ production agreement after his meeting with Saudi Crown Prince Mohammed Bin Salman points to the outsized role the country plays within the alliance.

"Russia's influence is welcome," says Saudi Energy Minister Khalid al-Falih, addressing Russia's role in the extension at the OPEC meeting in Vienna. "I don't think Russia is calling the shots."

According OPEC’s official statement released this afternoon, the conference agreed to extend voluntary production adjustments until March 31, 2020.

Oil prices swung wildly since the start of the year, caught between growing concerns over the global economy and geopolitical tensions in the Middle East and elsewhere. In the second quarter, International Energy Agency and Energy Information Administration downgraded their demand forecasts for the rest of 2019, fueling anxieties over bearish outlook for fuel consumption. Meanwhile, most market participants expect more supply coming from emerging producers, including the United States and Brazil. In the United States alone crude oil production averaged 12.4 million bpd in June, surpassing both Russia and Saudi Arabia. According to Baker Hughes data, the number of active rigs in the United States seeking oil increased for the second consecutive week, up 4 to 793, as of Friday (6/28).

Some market analysts believe a nine-month extension in supply limits is preferred to a six-month extension, as it provide the volatile market with higher degree of certainty into the end of the year.

Oil markets continue to draw support from a temporary truce in U.S.–China trade war reached after a highly anticipated meeting between U.S. President Donald Trump and China’s President Xi Jinping at the G20 Summit in Osaka, Japan. White House agreed to delay tariffs on $300 billion in Chinese goods, while also relaxing limits on telecommunication giant Huawei, while Xi pledged to further liberalize China’s import policy and purchase more U.S. agricultural products. Despite the renewed trade optimism, many analysts believe Xi will face tough opposition from Chinese businesses and Communist party’s hardliners to reach any trade deal with the United States, as it challenges China’s government-led economic model.

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

(BAS)