Overbought Oil Futures Open Week Lower, Cushing Build Eyed
CRANBURY, N.J. (DTN) -- Oil futures traded on the New York Mercantile
Exchange and Brent crude on the Intercontinental Exchange were down in early
trading Monday following an advance Friday amid overbought pressure and
expectations for a supply build at the Cushing tank farm in Oklahoma.
West Texas Intermediate and Brent crude futures are also retreating from
multiyear highs on their spot continuous charts traded last week, with the RBOB
and ULSD contracts reversing lower after testing multi-month highs posted last
The profit taking led decline follows heightened geopolitical tensions in
the Middle East in April that has ratcheted higher the risk premium in crude
prices. Those tensions are expected to be discussed this week in Washington,
D.C. amid state visits by France and Germany.
U.S. President Donald Trump will meet with French President Emmanuel Macron
on Tuesday and German Chancellor Angela Merkel on Friday, when it's expected
Europe's two leaders will attempt to persuade Trump to keep the United States
in the Iranian nuclear accord reached in 2015 during the Obama administration.
Trump has sharply criticized the agreement, and set a May 12 deadline for
major changes to be made to the accord that provide a greater scope for
international inspections of Iran's nuclear facilities, and addresses Iran's
ballistic missiles program and timeline that allows Tehran to resume its
nuclear program. Without these changes, Trump said he would withdraw the United
States from the accord, which would re-impose sanctions on Iran. Analysts'
estimate sanctions could cut Iranian crude exports, currently at about 3.8
million bpd, by 350,000 bpd.
The leaders this week are also likely to discuss the seven-year civil war in
Syria, and the recent chemical weapons attack by forces loyal to Syrian
President Bashar Assad that drew a sharp international rebuke and missile
strikes by the United States, France and Great Britain that destroyed three
facilities tied to Syria's chemical weapons activities. Iran and Russia are
allies of Assad.
June WTI futures are now nearest to deliver following the May contract's
expiration Friday afternoon, with the contract down $1.08 at $67.32 bbl at 9:00
The most recent data from the Energy Information Administration shows
Cushing oil inventory was drawn down 1.1 million bbl during the week-ended
April 13 to 34.9 million bbl, which was the first draw since early March. Stock
changes at Cushing are closely watched since it serves as the delivery location
for NYMEX WTI futures.
A strengthening U.S. dollar, trading at a better-than seven-week high early
Monday, is also weighing on WTI futures which have an inverse relationship with
the currency since oil trades globally in dollar denominations.
At 9:00 AM ET, ICE June Brent crude was down 73cts at $73.33 bbl, with its
premium widening out to $6.00 bbl in early trading, the widest the spread has
been since early January. The widening spread is an incentive for U.S. crude
exports, which have averaged 1.52 million bpd in 2018 through April 13, EIA
The widening spread is driven by heightened geopolitical tensions,
production cuts by the Organization of the Petroleum Exporting Countries and 10
non-OPEC oil producing countries, and a record rate of U.S. oil production last
tallied by EIA at 10.54 million bpd. On Friday, Baker Hughes reported the third
consecutive increase in the U.S. rig count, up five to a better-than three-year
high at 820, while gaining 23 so far in the second quarter and 73 year-to-date.
NYMEX May RBOB futures were 1.59cts lower at $2.0800 gallon, reversing down
from a $2.0955 gallon after testing Friday's $2.0987 7-1/2 month high on the
spot continuous chart.
NYMEX May ULSD futures were down 1.76cts at $2.1054 gallon, reversing lower
from a $2.1263 gallon overnight high, testing last week's $2.1285 gallon 2-1/2
month spot high.
Brian L. Milne, 1.609.371.3328, firstname.lastname@example.org, www.dtn.com. (c) 2018
DTN. All rights reserved.