Oil Shrugs off Black Sea Risk Ahead of US Inflation Report

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange declined on Monday as market participants assessed risk to oil supply in the Black Sea against inflation pressures in the United States and Eurozone, where central banks pledged to continue restrictive monetary policy in their fight to reduce inflation.

The Russian oil tanker "Sig" was attacked by a Ukrainian drone near the strategic Novorossiysk port on Saturday (7/5), 24 hours after the port was forced to briefly halt all traffic due to a drone attack on a Russian warship. Novorossiysk port processes nearly 1.9 million bpd or 2% of global oil supply.

There was no public claim of responsibility by the Ukrainian government, which usually refrains from taking credit for attacks on Russian territory, but a source in Ukraine's Security Service, the SBU, told NBC News that it "blew up a large oil tanker of the Russian Federation" in a joint operation with the navy.

Oil traders have so far brushed aside the latest geopolitical risk in the Black Sea.

Lower crude oil contracts on Monday follow last week's 4% rally fueled by extended production and export cuts into September announced by Saudi Arabia and Russia.

Saudi Arabia announced an extension of unilateral 1 million bpd production cut into September, while hinting that those cuts could be "deepened to support the market balances." Saudi Arabia's unilateral cut is atop of production reductions previously agreed to by the kingdom in the OPEC+ framework. Saudi oil production for September will be about 9 million bpd, the lowest output rate since 2012 outside of the pandemic.

Russia last week said it would limit oil exports by 300,000 bpd in September from 500,000 bpd this month.

On Thursday, U.S. Census Bureau will release its inflation report for July which could give investors greater insight into the likelihood of additional rate increases by the Federal Reserve. The consumer price index for July is expected to accelerate to 3.3% annually from 3% in June, while core inflation, which strips out volatile items like food and energy, is projected to have slowed to a year-on-year increase of 4.7%.

The upcoming inflation data follows July's nonfarm employment report from the Labor Department released on Friday (8/4) showing job growth of 178,000, the slowest pace since early 2021. Investors are wagering the July employment report showed the U.S. labor market is cooling enough for the Federal Open Market Committee to maintain the federal funds rate in a 5.25% by 5.5% target range when they meet on Sept. 20, with the CME FedWatch Tool showing 86.5% of investors anticipating no change.

At settlement, the U.S. dollar index advanced 0.02% against a basket of foreign currencies to 101.861, with the dollar having an inverse relationship with West Texas Intermediate.

WTI September futures on NYMEX declined $0.88 to settle at $81.94 bbl, and ICE October Brent settled down $0.90 to $85.34 bbl. NYMEX September RBOB futures advanced $0.0213 to $2.8044 gallon, while September ULSD contract fell $0.0467 gallon to $3.0155 gallon.

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

Liubov Georges