Oil Higher in Monday Trade

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and Intercontinental Exchange Brent futures advanced in early morning trade, with the August West Texas Intermediate contract up 1.5% ahead of expiration this afternoon on reports of escalating tensions in the Middle East and supply disruption in Libya's largest oil field.

At 9 a.m. ET, NYMEX August WTI futures were up $0.70 near $56.35 per barrel (bbl), with the September contract trading near parity. ICE September Brent futures were $0.75 higher near $63.20 bbl. NYMEX August RBOB futures were up fractionally near $1.8415 gallon, with the August ULSD contract advancing 1.25 cents to near $1.9025 gallon.

Oil futures extended gains early Monday after Iran's Revolutionary Guard seized a British-flagged oil taker and UK-owned Liberian vessel in the Strait of Hormuz, a vital waterway for global oil transit. Following the incidents, British government asked ships with UK interests to "stay out of the area for an interim period," while vowing to work with allies to secure safe passage. Iran's aggressive and unlawful actions towards international ships passing through the Strait of Hormuz fueled investor concerns over freedom of navigation in one of the most important trade routes for the oil market.

On Friday, Pentagon announced a large buildup of U.S. military forces in the region, which now includes the USS Abraham Lincoln and USS Boxer and a fleet of 21 ships that patrol the critical waterway, according to Wall Street Journal. Early Monday reports also indicate that Iran arrested 17 spies alleged to be working for the U.S. Central Intelligence Agency, sentencing some of them to death, while providing no additional details of the arrests.

Elsewhere, Libya's crude production plunged to 1 million barrels per day (bpd) -- the lowest in five months after a militant group disrupted the valve at the country's largest oil field. Wire services report the state-owned National Oil Corporation declared this weekend force majeure on Sharara crude exports from Zawiya oil port at Mediterranean Sea, citing "criminal activity" at the country's key oil pipeline. Libya's oil output remained under pressure from ongoing political strife between rival militias following General Khalifa Haftar's failed assault on Tripoli two months ago.

Against concerns of supply disruption, crude contracts still fell more than 7.5% last week, weighed down by lack of progress in U.S.-China trade talks and softening global demand. International Energy Agency Director Fatih Birol told Reuters last week that the agency was cutting its 2019 oil-demand growth forecast by 100,000 bpd. Still, the U.S. economy remains strong, spurred by steady consumer sentiment and expectations for another rate cut from Federal Reserve Bank later this month.

The University of Michigan said Friday its index of consumer sentiment was 98.4 in July, up slightly from June's final reading of 98.2. U.S. dollar is posting modest gains in index trading to start the week, inching up 0.14% to 96.950 overnight.

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

(BAS)