Crude Futures Choppy in Monday Trade

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- At the beginning of a new trading month, oil futures on New York Mercantile Exchange and Brent crude on Intercontinental Exchange traded on either side of unchanged after overnight data from China showed a better-than-expected rebound in factory output and the Organization of the Petroleum Exporting Countries considers bringing their next meeting forward five days to Thursday, suggesting producers are ready to agree on additional production cuts.

OPEC+'s policy meeting is currently set for June 9-10 when producers are expected to decide on extending 9.7 million barrels per day (bpd) in supply cuts beyond June. The current agreement calls for OPEC+ output cuts to step down from 9.7 million bpd this month to 7.7 million bpd for the second half of 2020.

Some reports suggest Russia is opposed to an extension on the grounds of a stronger-than-expected rebound in global fuel demand. However, with riots raging in major U.S. cities and reports of laggard compliance from key OPEC members, namely Iraq and Nigeria, Russian officials are reportedly ready to agree to extending the 9.7 million bpd in cuts for another one to two months. The official date for a new meeting is expected to be announced later Monday.

A Reuters' survey found the 13-member cartel delivered 4.48 million bpd of their pledged cuts last month, equal to 74% compliance. Iraq and Nigeria once again standout as noncompliant members, with the latter meeting only 19% of its promised reduction. Cumulatively, OPEC members pumped 24.77 million bpd in May, down 5.91 million bpd from April's revised figure.

On the economic calendar, China's industrial data showed an unexpected expansion in the country's factory output last month, up to 50.7 from 49.4 in April. PMI readings above 50 indicate expansion, while those below that level signal contraction. Data also suggested that production recovered faster than demand, and the rate of expansion for output was at its fastest since 2011.

New data came against a backdrop of reports suggesting China's state-owned agricultural companies, Cofco and Sinograin, halted purchases of U.S. farm products at the official request of Beijing. Bloomberg reported Chinese buyers over the weekend cancelled an unspecified number of U.S. soybean and pork orders, threatening the viability of the Phase One trade deal. Last week, White House scrapped policy exemptions for Hong Kong that allowed for free trade with the United States and announced sanctions on officials involved in eroding the territory's autonomy.

U.S. equity futures slipped lower in early trade Monday, with Dow Jones Industrials looking for a drop of 100 points under pressure from raging riots in major U.S. cities and overall risk-off sentiment in the global markets. Violent protests triggered by the death of George Floyd while in police custody on May 25 have sparked the most significant riots in the United States since 1968. National Guard troops have been deployed in over 15 states and curfews imposed in more than a dozen major U.S. cities.

In early hours Monday, NYMEX West Texas Intermediate July futures traded little changed at $35.37 per barrel (bbl) after advancing over 88% in May, with gains spurred by deeper-than-expected cuts by North American producers. Baker Hughes reported Friday the number of active rigs in the United States fell for an 11th straight week, with 15 rigs pulled from service during the week-ended May 29 to 222, the fewest since the end of June 2009. ICE Brent August futures edged up $0.21 to trade just above $38 bbl. NYMEX ULSD July futures traded near $1.0383 gallon and new front-month RBOB July futures were at $1.0798 gallon.

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

Liubov Georges