Oil Futures Slide Monday

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude futures traded on the Intercontinental Exchange reversed off new highs reached overnight in reaction to drone and ballistic missile attacks against Saudi Arabian oil infrastructure. Selling followed news from the kingdom's energy ministry that the two attacks caused no damage, prompting traders to take profits.

Oil futures had rallied into the weekend ahead of Sunday's attacks, although the spike to new highs contrasted with concern global oil demand while strengthening is strong enough to support Brent crude above $70 per barrel (bbl) while the U.S. crude benchmark West Texas Intermediate reached the highest trade on the spot continuous chart since October 2018 at $67.98 per bbl. Of note, the global crude benchmark Brent contract's previous high reached on Jan. 8, 2020, at $71.75 per bbl was also triggered by an international event in the Middle East when the United States assassinated Iranian General Qasem Soleimani who was considered a master military tactician leading Tehran's Middle East strategy, with the value of Brent at the time quickly retreating from the high in the ensuing days. The market reaction to both events suggest ample oil supply in meeting global oil demand trumps geopolitics.

Oil in floating storage was 99.32 million bbl as of Friday, March 5, according to Vortexa, up 7.73 million bbl, or 8.4%, on the week while down 121.98 million bbl, or 55.1%, from a 2020 peak reached late June at 221.3 million bbl.

NYMEX April WTI futures settled down $1.04 at $65.05 per bbl, and ICE May Brent futures ended the session with a $68.24 settlement, down $1.12. NYMEX April ULSD futures reversed off a $1.9868 14-month high on the spot continuous chart to settle the session down 3.55 cents at $1.9085 per gallon. NYMEX April RBOB futures settled 1.6 cents lower at $2.0487 per gallon, reversing off a $2.119 nearly 23-month high on the spot continuous chart.

The oil market late last week rallied following unexpected restraint by the Organization of the Petroleum Exporting Countries and Russian-led partners in their crude production quotas for April, largely maintaining March's steep output cuts while Saudi Arabia pledged to extend its unilateral 1 million bpd production cut in February and March that is not counted in the OPEC+ agreement for another 30 days. Russia and Kazakhstan were provided a 130,000 barrel-per-day (bpd) and 20,000 bpd allowance, respectively, in lifting output in April to satisfy domestic demand, with OPEC+'s March 4 agreement holding back 6.9 million bpd of oil from the market next month.

OPEC+ oil producers have held back production for more than four years, since the beginning of 2017, deepening those cuts in the second quarter 2020 in response to collapsing global oil demand amid the COVID-19 pandemic that triggered government lockdowns of businesses and prompted behavioral changes, some that might prove to be long lived. The coordinated production cuts have helped to balance the global oil market and lift oil prices, but the very extension of production cuts by OPEC+ illustrates the uncertainty in when the world would reach full recovery in oil consumption.

A paper released by the International Monetary Fund on Friday pointed to the challenges for economies hard hit by the pandemic to recover, with economies dependent upon tourism in Asia-Pacific and Caribbean Islands "a major concern." Smaller economies taking on heavy-debt loads could struggle for a protracted period before returning to growth, with global trade not assured in lifting the global economy, the authors contend.

As in previous blogs, the IMF is highlighting the world's disparity, with the rollout of vaccine campaigns differing widely. In one example, Johns Hopkins University's COVID-19 dashboard shows the highest concentration of COVID cases and fatality ratio to be in Central America. The slow rollout joined by emerging new strains of the coronavirus have some expecting a fourth wave of new infections.

The United States, with the federal government partnering with private industry in a program called Operation Warp Speed, continues to see an acceleration in vaccinations. The Centers for Disease Control and Prevention indicated more than 116 million vaccine doses have been delivered with 92.1 million doses administered as of Sunday night, with 18.1% of the population receiving one or more doses and 9.4% receiving two doses.

News over the weekend indicates large employers might be allowed to administer vaccines, with a Pew Research Center survey released Friday indicating about 69% of the population plan to get vaccinated, up from 60% in November 2020. There are now three approved vaccinations in the United States.

The disparity between the United States and countries elsewhere was reflected in currency trade, with the U.S. dollar strengthening to a more-than-three-month high at 92.440 in index trading.

The Dow Jones Industrial Average rallied Monday, up more than 300 points in late-afternoon trading, edging off a fresh record high at 32,148.04, following the weekend passage of a COVID stimulus bill in the U.S. Senate. The $1.9 trillion bill is expected to be voted on by the House of Representatives on Tuesday, which includes $1,400 stimulus checks and an extension of unemployment benefits through September, with the federal government to subsidize state unemployment insurance by $300 weekly.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne