DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange mostly moved higher in early trade Monday after Saudi officials indicated no additional production would come online following U.S. President Joe Biden's first visit to the Middle East, while weakness in the U.S. dollar triggered by a repricing of how aggressive Federal Reserve will raise interest rates at the next week's meeting further boosted the oil complex.

"The decision to increase oil production is within OPEC+ and should follow the policies of keeping the markets balanced not a particular agreement." said Saudi State Minister of Foreign Affairs Adel Al-Jubeir on July 16 as U.S. President Biden wrapped up his trip to the Middle East without a pledge for higher crude supplies from the Gulf producers. U.S. officials have confirmed they do not expect Saudi Arabia to immediately boost output and await the outcome of OPEC+ meeting on Aug. 3, which will include Russia. Riyadh was clear it's sticking with the alliance. Furthermore, OPEC+ spare capacity remains low, according to the analysts, with most producers currently pumping at maximum rate. It is unclear how much extra Saudi Arabia could bring to the market and how quickly. At its last meeting on June 30, OPEC+ greenlighted its last output target of 648,000 barrels per day (bpd) for August, ending record production cuts that it brought at the height of the pandemic to counter collapsing demand. The alliance gave no indication on what their next step in production policy would be.

In financial markets, the U.S. Dollar Index dropped more than 0.67% against the basket of foreign currencies to trade near 107.195, easing pressure on commodities traded in U.S. currency. Dollar weakness follows market's repricing of how aggressive Federal Reserve will move next week's on raising interest rates, with 67% of investors now expecting a 75-baisis-point hike compared with 33% still anticipating a 100-basis-point increase, according to CME's FedWatch Tool. Fed Governor Christopher Waller suggested last week that markets are overestimating the potential for a 1% increase in federal funds rates but added the central bank will be data-driven in making its rate decision. This sentiment was supported by Atlanta Federal Reserve President Raphael Bostic who said Friday that moving interest rates "too dramatically" could undermine the positive trends still seen in the economy and add to the already large amount of uncertainty.

On Friday, U.S. Census Bureau reported retail sales in June increased by 1%, topping expectations for a 0.8% month-on-month gain. The figures likely reflected the impact of decades-high inflation rather than an acceleration in spending activity. Still, there were no signs the American consumer is pulling back on spending either. Nine of the 13 retail categories showed increases last month, according to the report, including furniture stores, e-commerce and sporting-goods stores. That comes despite consumer prices gaining at the fastest clip since 1981 in June which sparked a debate as to whether the Federal Reserve would consider an unprecedented full percentage-point interest-rate hike later this month.

Further supporting the oil complex, China's Central Bank Chief Yi Gang reportedly pledged over the weekend stimulus for the economy in the face of resurgent virus and Beijing's zero-COVID policies. China's economy expanded at just 0.4% in the second quarter, missing estimates for 1% growth and 4.4% below the increase reported in the first three months of the year. This was the weakest performance since the first quarter of 2020, when China's economy came to a near standstill as it battled to contain the initial coronavirus outbreak that started in Wuhan province. For the first half of this year, the economy grew by 2.5%, way below the 5.5% annual target set by the government. Beijing admitted Friday that reaching its GDP goals this year would be hard.

Near 7:30 a.m. EDT, West Texas Intermediate August contract rallied $1.93 to $99.54 barrel (bbl). International benchmark Brent for September delivery climbed above $103 bbl, up by more than $2 bbl in overnight trading. NYMEX August RBOB futures advanced 7.65 cents to $3.2897 gallon, while front-month ULSD added 2.27 cents to $3.7217 gallon.

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