DTN Oil

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearest delivery oil futures on New York Mercantile Exchange and Brent crude on Intercontinental Exchange moved lower in pre-inventory trade Thursday, under pressure from an unexpected large build in U.S. commercial crude inventories and China's move to pass sweeping security legislature over Hong Kong, stoking tensions between Washington and Beijing.

The vote by China's parliament, although expected, pierced risk sentiment in equity markets, stalling the rally a day after Dow Jones Industrials closed above 25,000 for the first time since early March. U.S. Secretary of State Mike Pompeo said Wednesday Hong Kong no longer enjoys a high degree of autonomy from China, leading to a potential loss of the special trading status with the United States, and threatens its standing as an international financial hub.

"After careful study of developments over the reporting period, I certified to Congress today that Hong Kong does not continue to warrant treatment under United States laws in the same manner as U.S. laws were applied to Hong Kong before July 1997," said Pompeo in a statement.

Trump Administration in expected to take executive action on Hong Kong as early as Friday, according to reports, including potential economic sanctions and travel restrictions on China's government officials.

On the economic calendar, markets are bracing for weekly unemployment numbers in the United States and a second look at first-quarter reading for gross domestic product due out 8:30 a.m. ET. The second estimate is not expected to be revised from a negative 4.8% that is only partially captured economic contraction tied to the lockdown imposed mid-March. It is the second quarter GDP showing that is projected to show the full extent of pandemic's impact on the U.S. economy. Atlanta's Federal Reserve GDPNow model, using a methodology similar to U.S. Bureau of Economic Analysis, projects GDP to contract by as much as 40% from April through June, and for unemployment to reach a peak rate of 25%.

U.S. Federal Reserve Beige Book released Wednesday showed an expected contraction in economic activity and manufacturing production across all 12 Federal Reserve Districts this month, with notable drops in auto, aerospace, and energy-related plants.

"Energy activity plummeted as firms announced oil well closures, which led to historically low levels of active drilling rigs. Although many contacts expressed hope that overall activity would pick-up as businesses reopened," according to the Beige Book.

In the meantime, investors are closely watching demand indicators as the economy gradually emerges from lockdown, with the mobility index and demand for refined products providing signals for economy's real-time performance.

American Petroleum Institute data released late Wednesday showed demand recovery is still on a bumpy road, reporting an unexpected gain in crude oil and gasoline inventories during the week ended May 22. API data reported crude oil stocks jumped 8.731 million per barrel (bbl) in the week profiled while supplies at the Cushing, Oklahoma hub dropped 3.370 million bbl. Gasoline supply rose 1.12 million bbl in the week ended profiled while distillate stockpiles jumped 6.907 million bbl.

In early trading, NYMEX WTI July were down $0.29 near $32.50 bbl, with the August contract trading at 0.47 cents premium. ICE July Brent futures were modestly lower at $34.54 bbl, with the August contract expanding its premium to $0.73 bbl. NYMEX RBOB June futures were up $1.04 at $.9829 gallon, with the July trading with 3.05cts premium. ULSD June futures moved down 1.90 cents to $.9517 gallon, with the July trading at $0.9905 gallon.

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

Liubov Georges