DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on Intercontinental Exchange moved higher in early hours Tuesday, with West Texas Intermediate June contract extending a rally on data showing shale operators throttled back production more than previously forecasted while a recovery in demand amid a resumption of economic activity has eased storage constraints.

In early trading, NYMEX June WTI futures added $0.55 to trade above $32 per barrel (bbl), widening its premium to the July contract to about $0.60 ahead of expiration this afternoon.

Chicago Mercantile Exchange lowered margin requirements for the June WTI contract by 25% from $12,000 as recent extreme volatility eased. Cumulative trade volume early Tuesday for the June contract is nearing 1,500 contracts compared with the July contract at just below 138,000.

International Brent crude benchmark for July delivery was slightly higher near $35 bbl, paring an advance to a $35.76 six-week high on the spot continuous chart.

NYMEX June ULSD futures were flat near $1.0070 gallon, stalling n front of Monday's $1.0286 five-week spot high. NYMEX June RBOB contract was up 1.4 cents near $1.04, easing from a $1.0510 nine-week spot high.

Energy Information Administration projects crude production from seven major shale formations in the United States to fall by a record 197,000 barrels per day (bpd) in June to 7.822 million bpd, a downward revision of 704,000 bpd from last month's forecast. If realized, production decline would amount to 3.8 million bpd by the end of June from the current 11.6 million bpd.

Few analysts expected the cuts would run this deep and happen so quickly. Days after the May WTI contract settled at a negative $37.63 bbl on April 20, most forecasts called for U.S. production to decline by about 1.5 million bpd by the end of June. A month later, domestic producers are on track to shut-in twice as much, easing fears over storage capacity and bolstering the WTI contract.

In financial markets, Federal Reserve Chairman Jerome Powell and U.S. Treasury Secretary Steven Mnuchin are set to testify Tuesday before the Senate's financial committee about the $2 trillion economic-relief package delivered to small businesses due to the COVID-19 pandemic. The testimony begins 10 a.m. ET.

U.S. stock futures moved modestly lower following Monday's rally that lifted Wall Street to its best session in five weeks, spurred by Fed's aggressive liquidity injections and hopes for the development of a vaccine for COVID-19. On Monday, Dow Jones Industrials surged more than 900 points to 24,597 and S&P was up 3.15%.

U.S. investment bank Citi Group forecasts the two indexes would recoup 81% and 90% of their losses suffered from February's record peaks in as little as 15 months. The optimistic outlook reflects expectations for improved economic performance next year and in 2022 as well as development of the vaccine that would bring back many of the "normal practices."

"While some industries could face permanent long-term damage, the Great Pause will reverse itself as time progresses," said the bank.

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

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