DTN Oil

VIENNA (DTN) -- Oil futures closest to expiration on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange shed some of last week's gains Monday morning, after Israel withdrew its ground troops from the southern Gaza strip over the weekend amid reports of progressing negotiations for a ceasefire. Flaring tensions in the Middle East propelled both crude benchmarks to 24-week highs Friday on concerns a potential Iranian retaliatory strike on an Israeli diplomatic facility could escalate into a broader military conflict.

Threats to already tight crude oil supply -- be it Ukrainian strikes on Russian refineries, Houthi threats to Red Sea shipping, or a potential military escalation in the Middle East -- have lately been supportive of oil prices. Their effect, however, was dampened by ample spare production capacity, a result of OPEC+'s output curtailments, which tightened the market considerably and have been the actual main driver of prices. The Energy Information Administration in its March Short-term Energy Outlook estimated OPEC spare capacity to sit at 4.71 million barrels per day (bpd).

Bullish U.S. macroeconomic indicators, meanwhile, were a double-edged sword for fuel demand expectations. The Bureau of Labor Statistics on Friday reported 303,000 new jobs in March, beating expectations by 91,000. While a red-hot labor market and growing earnings are certainly supportive of gasoline demand, they also push back potential interest rate cuts and with them growth potential in manufacturing activity and associated middle distillate demand.

Near 7:00 a.m. EDT, West Texas Intermediate futures for May delivery were down $0.67 to $86.24 barrel (bbl), while Brent for June delivery retreated $0.70 to $90.47 bbl. RBOB for May delivery shed $0.0174 to $2.7712 gallon, while ULSD for May delivery traded near $2.741 gallon, down $0.032.

Karim Bastati can be reached at karim.bastati@dtn.com