Oil Pares Gains on US-China Tensions

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Fading from intrasession highs, West Texas Intermediate and RBOB futures on the New York Mercantile Exchange and Brent on the Intercontinental Exchange finished Thursday's session modestly higher, with the ULSD contract under pressure from surging unemployment in the United States, while flaring U.S.-China tensions further dampened risk-on trade.

U.S. Bureau of Labor Statistics reported first-time unemployment claims jumped 2.438 million during the week ended May 16, lifting the number of those who lost their jobs over the course of the pandemic to a staggering 38.430 million. The unemployment rate in the United States is now at 17.2%, with further deterioration in labor market almost a certainty.

"Unemployment numbers will get worse before they get better," said U.S. Treasury Secretary Steven Mnuchin during Senate testimony this week.

Wire services reported top financial advisers to the White House now seek additional stimulus packages even as more states start to reopen and the economy struggles to stabilize.

Further weighing on sentiment, U.S.-China trade tensions over coronavirus response show no signs of abating, with the Trump administration blaming China's incompetence on "this mass worldwide killing." In response, Beijing suggested the United States might be the real source of the global pandemic.

The world's two largest economies had been embroiled in a bruising trade war for nearly two years, with the relationship worsening over issues surrounding the coronavirus pandemic.

Global equities were mostly lower Thursday, with stocks on Wall Street snapping a recent rally to end the session with modest losses.

On the session, WTI July futures gained $0.43 to settle at a $33.92 barrel (bbl) fresh, ten-week high on the spot continuous chart, drawing tepid support from an unexpected 5 million bbl draw in U.S. commercial crude stockpiles last week. The drawdown was driven by a 5.5 million bbl decline at the Cushing tank farm delivery location for the WTI contract. The international crude benchmark Brent futures contract finished the session just above $36 bbl, fading from an intrasession high $36.98 bbl.

NYMEX June ULSD futures softened to a $0.9890 gallon settlement, holding below Monday's five-week spot high at $1.0286 gallon, under pressure from building supply. The Energy Information Administration (EIA) reported distillate fuel inventories increased for the seventh straight week through mid-May, rising 3.8 million bbl to a three-year high 158.8 million bbl and demand for distillates fell another 4% on the week.

NYMEX June RBOB futures also finished little changed at $1.0451 gallon, holding below Wednesday's ten-week spot high $1.0888 gallon after EIA reported gasoline stocks increased 2.8 million bbl last week and implied demand for motor fuel decreased for the first time in six weeks.

Earlier in the session, the oil complex got a leg up from overnight data in the Eurozone and Japan suggesting a rebound in service and manufacturing sectors following weeks of coronavirus lockdown.

Liubov Georges, 1.646.359.4088, liubov.georges@dtn.com, www.dtn.com

Liubov Georges