ICE Brent Near 3-Month High

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Following the three-day holiday weekend, oil and product futures on the New York Mercantile Exchange were mixed and Brent crude on Intercontinental Exchange charged higher on Monday after Saudi Aramco raised its official selling price for the key export markets a third month in a row, indicating improved global demand fundamentals, while supportive economic data out of eurozone further bolstered the risk-on trade.

In early trading, NYMEX August West Texas Intermediate futures were steady near $40.70 per barrel (bbl) after gaining over 5% last week. Brent crude for September delivery advanced $0.53 to trade near three-month high $43.31 bbl. NYMEX ULSD August futures gained 1.84 cents to near $1.2494 gallon and the front-month RBOB August contract slipped 0.08 cents to $1.2592 gallon after rallying over 9% last week.

State-run Saudi Arabian Oil Company on Monday raised the official selling price for Arab light crude to Far East Asia, Europe and the United States in August. The move marks the third consecutive month in which Aramco has increased its export price that was first raised only for the Asian customers. The Saudi state producer makes its pricing decision based on local demand fundamentals, so the latest price move was "a bullish sign" for the market outlook in a wake of coronavirus lockdowns.

The implied volatility for international crude benchmark Brent dropped to its lowest since prices started collapsing in early March, with markets looking to tightening global oil supplies and improved economic data out of major demand centers. The Saudi-led coalition of 23 producers has been withholding 9.7 million barrels per day (bpd) from the global oil market to offset the deep plunge in demand back in March-April. Russian Energy Minister Alexander Novak now says the global oil market could face a shortage of 3-5 million bpd this month, with the latest comments indicating the group likely to ease steep supply cuts in August.

Underlining this trend, retail sales in the eurozone jumped 17.8% in May after plunging into double-digit contraction back in April. A similar trend has been observed in the U.S. where pent up demand sent retail sales skyrocketing last month. Looking ahead, there could be a growing gap between the two as U.S. is facing massive new COVID-19 outbreaks in parts of the country, while the European Union is heading for further re-openings and easing travel resections.

Markets, however, seemed to shrug off the growing health crisis across Southwestern states even as new COVID-19 infections surged by almost 56,000 from Saturday to Sunday, an increase of 2% versus the 1.8% average daily increase over the past week, according to Johns Hopkins. In Florida, Miami-Dade County declared a curfew heading into July 4th weekend to prevent the virus spread. There are emerging signs the U.S. consumer is pulling back on spending, driving and returning back to work. U.S. continued unemployment claims for last week, the number of people receiving unemployment benefits for consecutive weeks, rose to 19.29 million, nearly 300,000 above forecasts, suggesting permanent job losses are rising. Goldman Sachs lowered its 2020 growth forecast for the U.S. from a contraction of 4.2% to 4.6% in a note released over the holiday weekend.

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

Liubov Georges