DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved lower early Tuesday after the Independence Day holiday in the United States, with the decline following mounting evidence of slowing economic activity in the United States and Europe that is countering production disruptions in northern Africa and the North Sea.

Norway-based Equinor said Tuesday the company "initiated a safe shutdown of the Gudrun, Oseberg South and Oseberg East fields after members of the Norwegian Organisation of Managers and Executives (Lederne) trade union went on strike from midnight."

Equinor said total production affected by the strike is 89,000 barrels (bbl) of oil equivalent per day; 27,500 boe/d is natural gas. This is the first phase of a three-phase planned worker action by Norwegian oil workers, with Equinor indicating the strike would expand to the Heidrun, Kristin and Aasta Hansteen fields from midnight Wednesday, and to Tyrihans Wednesday, with the fields having a combined 333,000 boe/d of capacity of which 264,000 boe/d is natural gas.

"A further escalation has been announced from 9 July at Sleipner, Gullfaks A and Gullfaks C," said Equinor. "Consequences of this escalation is not yet clear."

Lost oil and gas production in Norway joins an expanded production outage in Libya, where Libya's National Oil Corporation on June 30 expanded a force majeure to two export terminals and an oilfield, with five terminals now shut, reducing exports from more than 1 million barrels per day (bpd) to between 365,000 and 409,000 bpd. Protests expanded across nine cities in the north African nation and member of the Organization of the Petroleum Exporting Countries over the weekend as rival parties seek control of the country's presidency, with parliament in Tobruk set on fire. Further production loss in Libya is expected.

Despite this lost output, oil futures were under selling pressure as slowing economic growth in the European Union and United States were seen reining in oil demand, while an aggressive U.S. Federal Reserve is expected to again raise the federal funds rate later this month to fight inflation. Fed chairman Jerome Powell has acknowledged lifting interest rates could push the U.S. economy into recession, but said it was critical for the central bank to gain control over inflation.

On Friday (7/1), Atlanta Federal Reserve Bank's GDPNow tracker indicated the U.S. economy contracted 2.1% in the second quarter. If proven correct, the U.S. economy is now in recession, with the Bureau of Economic Analysis indicating U.S. gross domestic product declined at an annual rate of 1.6% in the first quarter. A recession is defined as two consecutive quarters with negative GDP.

Fed's monetary tightening policy continues to strengthen the U.S. dollar, which rallied to a 106.075 20-year high in early index trading, with the previous high reached in December 2002 at 107.380. The stronger dollar weighs on West Texas Intermediate, with the dollar and crude oil having an inverse relationship.

Shortly before 8 a.m. EDT, NYMEX August WTI futures were down $0.50, slipping below $108 bbl, with ICE August Brent $1.80 lower at $111.70 bbl. NYMEX August RBOB futures were nearly 2.3 cents lower to $3.6650 gallon, and August ULSD futures were down 4.04 cents at $3.8985 gallon.

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