Morning Market Overview
Oil Futures Pare Gains from Trade Optimism on Jobs Data WASHINGTON, D.C. (DTN)
Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange are paring overnight gains that were supported by a potential delay in U.S. tariffs on Mexico and a warning from Saudi’s Energy Minister that a return to a price crush environment would be unacceptable, coming under pressure from bearish jobs data.
NYMEX July West Texas Intermediate were up $0.20 near $52.80 bbl shortly after 9 AM ET, backing off a $53.83 bbl four-day high following a bearish jobs report and despite a weaker U.S. dollar. The U.S. dollar took a nosedive after the Bureau of Labor Statistics reported 75,000 new jobs for May, well below expectations for job growth of 180,000, while also revising down job totals for March and April by a combined 75,000 jobs. The U.S. dollar fell 0.397 to 96.6 in index trading, a seven-week low.
NYMEX July RBOB futures were holding onto a marginal gain at $1.7085 gallon after trading at a $1.7388 three-day high, with July ULSD futures up 0.6cts near $1.7945 gallon, cutting an advance to $1.8217 gallon. ICE August Brent futures were up $0.35 near $62 bbl, backing off a $63.12 high.
WTI rebounded on Thursday after dipping into bear market territory amid escalating trade tensions and growth concerns. Investors’ angst over Trump administration tariffs on Mexico was soothed late Thursday afternoon by reports Mexico is sending additional troops to boost security of the southern border. Early morning reports also suggest that Mexico blocked the bank accounts of people involved in human trafficking and those providing illegal aid to migrant caravans. U.S. Vice President Mike Pence said on Thursday, “We welcome the efforts of the Mexican officials to offer solutions to the crisis at our southern border”. Economists believe that 5% tariff hike on Mexico could hit as much as $360 billion in traded goods and would represent the biggest imposition to date of such duties on a U.S. trading partner. Moreover, Trump’s tariffs would cover sectors of the economy not previously involved in the trade war, including crude oil and petroleum products. U.S.–Mexico energy trade accounts for nearly 12% of the total trade between the two countries.
Saudi Energy Minister Khalid al-Falih said on Friday a $60 bbl oil was too low to encourage investment in the industry, while also emphasizing that a return to 2014 price crush is unacceptable for the kingdom. During an industry conference in St. Petersburg, the Saudi official reiterated his country’s commitment to balance the market amid rising global uncertainties, including trade disagreements.
Al Falih’ comments seem to contradict earlier remarks from Russian President Vladimir Putin who said Russia doesn’t need an oil price above a $60 to $65 bbl range. Putin stated this week the current Brent price is “quite satisfactory,” and Russia’s national budget has decent margins since it was based on $40 bbl oil in 2018-2019.
Russia’s oil industry uncharacteristically voiced public opposition to the country’s participation in the international agreement with the Organization of the Petroleum Exporting Countries to curb oil production. Rosneft’s CEO Igor Sechin said earlier this week he would demand government compensation for the losses his company incurred due to obligatory production cuts imposed under the OPEC deal.