Morning Market Overview
Petroleum markets are moving lower at first glance this morning after advancing Wednesday on an unexpected drawdown in commercial crude supply in the United States, while the Trump administration ramps up sanctions on Iran and China pushes back on a threat of higher U.S. tariffs.
The unexpected 4 million bbl decline in U.S. commercial crude stocks for the week-ended May 3 reported midmorning by the Energy Information Administration contrasted with a 2.806 million bbl build reported late Tuesday by the American Petroleum Institute to move shallowly mixed trading in June West Texas Intermediate to an enduring advance on the session.
NYMEX June WTI futures settled up $0.72 at $62.12 bbl after inside trade and following Monday’s traded $60.04 one-month low on the spot continuous chart. ICE July Brent crude settled up $0.49 at $70.37 bbl after settling at a one-month spot low below $70 bbl Tuesday, with Brent’s premium to WTI narrowing to a better-than two-week low at $8.25 bbl. NYMEX June RBOB futures reversed off a fresh five-week low on the spot continuous chart at $1.9264 to gain 2.63cts with a $1.9750 gallon settlement, and June ULSD futures increased 1.86cts to settle at $2.0562 gallon after inside trade.
Gasoline futures rallied despite a smaller-than-expected 600,000 bbl draw in national inventory to 226.1 million bbl during the week-ended May 3, with inventory 9.7 million bbl or 4.1% below year ago. Implied gasoline demand shot up 643,000 bpd to 9.871 million bpd—a more than eight-month high. A surge in U.S. gasoline imports to 1.114 million bpd—the first weekly rate above 1 million bpd in 2019 and the largest inbound volume of foreign produced gasoline in eight years, limited the inventory drawdown.
The focus on fundamentals today came in front of scheduled bilateral trade discussions in Washington, D.C. between top U.S. and Chinese officials and a promised expansion in U.S. tariffs on Chinese imports scheduled to take effect on Friday.
U.S. President Donald Trump surprised markets on Sunday with the announcement made in response to U.S. charges China is backsliding on previous pledges in trade discussions. China today threatened to respond “in kind” to higher U.S. tariffs, heightening headline risk in oil and equity markets. After heavy selling in equities Monday and Tuesday, the Dow Jones Industrial Average and S&P 500 Index were little changed in late trading, giving up early gains. On the one-year anniversary of the U.S. withdrawal from the Iranian nuclear accord, Trump through an executive order announced sanctions on Iran’s steel, aluminum and cooper industries this afternoon.
Earlier in the day, Iran President Hassan Rouhani gave European countries 60 days to improve economic ties with Iran or Tehran would partially withdraw from the nuclear accord. The United States has sent an aircraft carrier strike force and four B-52 bombers to the Middle East as a message to Tehran in response to reports Iran was preparing to attack U.S. forces in Iraq. U.S. Secretary of State Mike Pompeo canceled a meeting with German Chancellor Angela Merkel on Tuesday for an emergency trip to Baghdad.