DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were mixed in early trading Monday, with the crude contracts lower after a Russian court overturned a previous ruling that ordered a suspension of loadings by the Caspian Pipeline Consortium in the Black Sea for 30 days, and ahead of U.S. President Joe Biden's trip to the Middle East later this week when he will visit Saudi Arabia.

Earlier Monday, Reuters reported a court fined CPC 200,000 rubles, or US$3,300, for violating a spill prevention plan that on July 5 a previous court cited the violation for ordering a 30-day suspension of loadings by CPC in the Black Sea. There are three moorings at the CPC terminal with the equivalent of loading as much as 953,000 barrels per day (bpd) of oil. Loadings had not been affected by the order as CPC appealed the first court ruling.

Lower crude oil futures come ahead of a July 13-16 visit to the Middle East by U.S. President Joe Biden, where he will meet with Saudi Arabian Crown Prince Mohammed bin Salman who Biden previously called a pariah. The two leaders have a chilly relationship, with MBS, how the crown prince is frequently referenced, wanting Washington to provide greater security against Iran, Saudi Arabia's rival in the Middle East.

Ahead of this week's planned visit by the president, when Biden is expected to ask Riyadh to pump more oil, the U.S. Treasury Department on July 6 imposed sanctions on Iranian oil for failing to return to the multinational Joint Comprehensive Plan of Action that put limits on Iran's nuclear program. The Trump administration pulled out of JCPOA in May 2018, citing several shortcomings with the agreement, including Iran's military adventurism in the Middle East. The Biden administration has been eager to return the United States to the agreement, but recent restarted talks between intermediaries in Europe failed to achieve a breakthrough, and Tehran appeared reluctant to move ahead with further discussions.

"We are imposing sanctions on Iranian petroleum and petrochemical producers, transporters, and front companies," tweeted U.S. State Secretary Antony Blinken on July 6. "Absent a commitment from Iran to return to the JCPOA, an outcome we continue to pursue, we will keep using our authorities to target Iran's exports of energy products."

Lower crude futures also follow building U.S. commercial crude oil inventory, which increased by a sizable 8.234 million barrels (bbl) during the week-ended July 1, according to the Energy Information Administration. It was the third largest weekly build in domestic inventory so far this year, lifting stocks to 423.8 million bbl -- the second highest stock level in 2022.

Oil futures were under heavy selling pressure for most of last week on slowing economic growth amid broadening inflation which is at a four decade high in the United States, and at the highest level on record for the European Union, which was founded in 1993, and climbing interest rates. The Federal Open Market Committee will meet July 26-27 when central bank officials are widely expected to lift interest rates by another 75 basis points to a 2.25% by 2.5% target range, with an aggressive rate tightening cycle having the potential to push the U.S. economy into recession.

Several indicators suggest the U.S. economy did move into recession in the second quarter, although others have pushed back, saying the economy continues to show growth while the labor market is strong. Indeed, the Bureau of Labor Statistics on Friday (7/8) reported 372,000 job gains for June that was well above consensus for 270,000 new positions, while job openings outpace those seeking a job. The strong jobs number, while showing continued economic growth, also means the Fed will need to stay aggressive in fighting inflation through further increases in the federal funds rate that will slow business expansions amid higher borrowings costs and further reduce consumer spending, with the Bureau of Economic Analysis last reporting its Personal Expenditures Consumption Index slowed to 0.2% in May, down from 1.2% in March.

Recession will retard demand for oil, countering a tight global oil market. Recent analysis by the EIA finds high fuel prices were a factor in slowing gasoline consumption in the United States from April through the first week of July. After strong demand growth for gasoline from mid-2020 through the first quarter, EIA on July 7 said the trend reversed in April. Their analysis finds from April through the first week of July gasoline consumption averaged 8.9 million bpd, 200,000 bpd or 3% less than the comparable period in 2021, while the lowest consumption rate since 2001 after stripping out 2020 -- the year of pandemic lockdowns.

Near 7:30 a.m. EDT, NYMEX August West Texas Intermediate futures were down $2.35 near $102.40 bbl, erasing Friday's advance, with ICE August Brent $1.85 lower near $105.15 bbl. NYMEX August RBOB futures were 3 cents lower near $3.4160 gallon, while oversold August ULSD futures bucked the trend, rallying 8.5 cents to near $3.7580 gallon.

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