Morning Market Overview
Nearest delivered New York Mercantile Exchange oil futures and Brent on the Intercontinental Exchange reversed sharply higher in overnight trade, with West Texas Intermediate August contract trading above $60 bbl on reports Saudi Arabia and Russia reached consensus over extending supply cuts, while a breakthrough in U.S.–China trade talks trigger risk-on trade.
New York Mercantile Exchange August WTI futures were $1.65 higher near $60.10 bbl at 9 AM ET, with ICE September Brent up $1.75 near $66.50 bbl. NYMEX August ULSD futures were up 4.1cts near $1.9805 gallon, with the August RBOB contract rallying 6.15cts to near $1.9590.
WTI futures spiked to a one-month high early Monday, as Organization of the Petroleum Exporting Countries, Russia and nine other oil producing countries are poised to extend a supply agreement for longer than expected into the first quarter of 2020. According to wire services, Saudi and Russian energy ministers unexpectedly endorsed a nine-month extension of the current 1.2 million bpd in production cuts at a time of growing geopolitical tensions in the Middle East. “I think its most likely nine months, but we have to talk to other members. My preference is nine-months,” said Khalid al-Falih in Vienna on Sunday. The decision to extend the cuts into the winter months is partly driven by requests from Russian oil producers that find it technically challenging to increase production volumes under harsh weather conditions in Siberian oil fields.
“In the winter period it would be difficult to exit the deal, when production is fixed and demand is falling. Therefore, it is most likely, most beneficial, to extend the deal for nine months,” Russia’s Oil Minister Alexander Novak said Saturday, according to the Prime news agency. The final decision on production cuts will require a unanimous vote among all members of the alliance and at least one country is already voicing its discontent with the deal. Iran said on Monday that OPEC members must consult among themselves first and only after bring into negotiations producers outside the block.
“Without the unity of OPEC, it is meaningless to plan cooperation between OPEC member-states and other producers,” said the Iranian energy minister hours before negotiations begin on Monday. Oil markets were further boosted on Monday after the United States and China reached an agreement to renew trade talks, with both countries agreeing to minor concessions. U.S. President Donald Trump delayed tariffs on $300 billion in Chinese goods, while also relaxing limits on telecommunication giant Huawei.
China’s President Xi Jinping pledged to further liberalize China’s import policy and purchase more U.S. agricultural products. Despite the renewed trade optimism, many analysts believe that Xi will face tough opposition from Chinese businesses and Communist party’s hardliners to reach any trade deal with the United States, as it challenges China’s government-led economic model.
In financial markets, U.S. stock futures point to record highs on Monday after all three indexes notched their best quarterly performance in decades. Dow Jones Industrial Average futures are poised for a 270 points advance at the market open, while S&P 500 up 1.3%, as of 8:00 AM ET. U.S. dollar strengthened in overnight index trading to reach 96.050, 1-1/2 week high.