Oil Futures Dip Ahead of Barry

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and Intercontinental Exchange Brent pulled back after Wednesday's rally, as market participants brace for the impact of a tropical storm in the Gulf of Mexico, while crude production by the Organization of the Petroleum Exporting Countries sank to a five-year low.

Oil futures settled modestly lower Thursday following new highs overnight, even as government data showed crude oil production in the U.S. Gulf of Mexico was down by more than 50%. Operators continued evacuating personal and to shut-in output following the formation of Tropical Storm Barry. The Bureau of Safety and Environmental Enforcement Thursday afternoon said a total of 191 production platforms, or nearly 29% of the manned platforms in the region were evacuated versus just 2.24% on Wednesday. Still, West Texas Intermediate and Brent gave up earlier gains, as traders attempt to access the storm's effect on demand and ability of U.S. producers to quickly restart production after severe weather conditions recede.

OPEC said on Thursday production by the 14-member cartel sank to a five-year low in June following nine consecutive months of declines. According to its Monthly Oil Market Report, OPEC data shows Iran's output collapsed 142,000 barrels per day (bpd) last month to 2.225 million bpd, the lowest level in three decades amid ongoing U.S. sanctions on its' crude exports and the lack of investment into a decaying oil complex. Steep production losses in Iran were partially offset by supply increases in Saudi Arabia, up 126,000 bpd -- the first time in seven months output in the kingdom increased, while 500,000 bpd below their allotted production quota under the OPEC+ accord.

Crude production in the second largest member of the alliance, Russia, plummeted to 10.79 million bpd in July, a three-year low, according to Reuters. Russia's current production rate is well below the limit set by the OPEC+ deal, and continues to be pressured by the fallout from contaminated oil crisis. According to industry sources, crude oil output at Yuganskneftegas field in West Siberia, which was a source for contaminated oil in previous months, collapsed more than 30% during July 1-8, due to a "significant" cap on production allowed to be transported on the Transneft Pipeline System.

Domestically, market participants widely expect the Federal Reserve to cut interest rates at its July meeting by at least 25 basis points, with the range in the Fed's funds target rate currently between 2.25% and 2.5%. Federal Reserve Chairman Jerome Powell strongly suggested on Wednesday another rate cut is warranted to insulate the U.S. economy from the uncertainty of trade disputes and weakening investment flow.

"The bottom line for me is that the uncertainties around global growth and trade continue to weigh on the outlook," said Powell.

NYMEX August West Texas Intermediate settled $0.23 lower at $60.20 barrel (bbl), while ICE September Brent crude settled a steeper $0.49 down at $66.52, with losses accelerated in market-on-close trade. NYMEX August RBOB futures ended the session 1.57cts lower at $1.9895 gallon and NYMEX August ULSD futures were down 1.24cts with a $1.9786 gallon settlement.

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

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