WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and Intercontinental Exchange Brent futures advanced in market-on-close trade Monday with the exception of the gasoline contract, boosted by expectations the Federal Reserve would cut the federal funds rate this week and on renewed trade optimism ahead of U.S.-China talks, helping push the U.S. crude benchmark 1.2% higher.
NYMEX September West Texas Intermediate gained $0.67 to a $56.87 per barrel (bbl) settlement, while the ICE September contract was up $0.25 to $63.71 ahead of contract expiration Wednesday afternoon. October Brent futures ended the session at a $0.09 discount to the expiring September contract. NYMEX August ULSD futures settled 0.62 cents up at $1.9106 gallon, a 0.97-cent discount to the September contract ahead of contract expiration Wednesday afternoon. NYMEX August RBOB futures dipped 1.1 cents to $1.8634 gallon, a 4.81 cents premium to the September contract ahead of expiration Wednesday afternoon.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are scheduled to arrive in Shanghai on Tuesday for a new round of trade talks with a Chinese delegation led by Vice Premier Liu He. While expectations for a major breakthrough in the yearlong trade impasse are tepid, modest and achievable wins for both teams could set the stage for tackling longer-term structural issues, according to analysts.
Chinese officials have so far resisted U.S. pressure to scale back government subsidies of high-tech industries and forced transfer of technology for U.S. companies operating in China. Last week, U.S. President Donald Trump suggested Beijing is likely to delay a trade agreement until after 2020 U.S. Presidential elections.
The U.S.-China trade war has roiled global financial markets since early 2018, causing major disruptions and slowdown in global trade and manufacturing sectors. The latest GDP reading from China showed its economy grew at the slowest pace in roughly 27 years last month. In the United States, the economy performed better than most analysts expected during the three months ended June 30, but still the growth slowed 1% in the second quarter to 2.1% annualized growth. This week, market participants will pay close attention to China's manufacturing index set to be released on Wednesday.
U.S. Federal Reserve is broadly expected to announce a 25 basis point interest rate cut this week, which would likely trigger a short-term rally in risk assets, but could also raise concerns over the long-term health of the U.S. economy. Central bank is holding its rate-decision meeting on Tuesday and Wednesday, with Fed officials scheduled to release a decision 2 p.m. ET Wednesday.
President Trump also weighed on the Fed's meeting Monday afternoon, tweeting. "The E.U. and China will further lower interest rates and pump money into their systems, making it much easier for their manufacturers to sell product. In the meantime, and with very low inflation, our Fed does nothing -- and probably will do very little by comparison. Too bad!"
A rate cut is also likely to weaken the U.S. currency, and since oil is bought and sold in dollars, that could propel oil prices higher. The U.S. dollar hit 97.905 Monday, a nearly two-month high in index trading.
In oil markets, West Texas Intermediate gains were also spurred by continued declines in U.S. drilling activity, with Baker Hughes reporting last week active oil rig count fell to the lowest level in nearly 18 months. Market observers forecast more drilling rigs to be idled in the second half of the year, as shale producers exhaust their budgets.
Liubov Georges can be reached at firstname.lastname@example.org
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