Morning Market Overview
New York Mercantile Exchange oil futures nearest to delivery and Intercontinental Exchange Brent futures reversed higher in overnight trade, lifted by reports the U.S. Navy destroyed an Iranian drone in the Persian Gulf. Near 9:00 AM ET, August West Texas Intermediate crude futures traded up 60cts to $55.90 bbl while ICE September Brent crude rose 77cts to $62.70 bbl.
NYMEX August ULSD futures climbed 2.54cts to $1.8879 gallon and August RBOB futures traded 1.48cts higher at $1.8490 gallon. Oil futures expanded geopolitical risk-premium Friday morning in response to reports late Thursday that a U.S. warship destroyed an Iranian drone—a claim Tehran has so far denied. President Trump said the U.S.S. Boxer took defensive action after an Iranian drone approached it within 1,000 yards.
The strike would mark the first instance of the United States destroying Iran’s military infrastructure in the region, sharply elevating the risk of confrontation between Washington and Tehran. The reports of an attack also follow earlier warnings from U.S. military command that the U.S. would work “aggressively” to ensure freedom of navigation in the Gulf, while the White House is preparing to deploy 500 additional troops to the region.
Thursday’s reports also indicate that Tehran offered a plan earlier this week that would allow for a greater oversight of its nuclear program in return for lifting of U.S. sanctions, but the plan was quickly rebuffed by the Trump administration. A deal on the missile program could lead to an end of sanctions against Iran, which could potentially result in nearly 2 million bpd of Iranian oil flowing into the market.
Oil futures slumped to multi-week lows on Thursday, with markets gripped by bearish sentiment of global oversupply at the time when global economy flashes the signs of weakening growth. U.S. oil operators in the Gulf of Mexico quickly restored crude production in the region following Hurricane Barry.
Government data Thursday showed roughly 19% of the current oil production in Gulf of Mexico remain shut, which compares with 58% just two days ago. In addition, Russian crude oil output reversed from three-year low last month amid ongoing recovery following the biggest oil contamination crisis in decades. Russian Energy Minister Alexander Novak said on Thursday the country’s production has recovered to 11.191 million bpd -the ceiling that Moscow pledged under OPEC+ deal.