Morning Market Overview

Oil Futures DN while OPEC+ Meeting Ends with 9mos. Deal WASHINGTON, D.C. (DTN)

New York Mercantile Exchange oil futures nearest to delivery and Intercontinental Exchange Brent futures pulled back in overnight trade following Monday’s surge, while Organization of the Petroleum Exporting Countries and a Russia-led group of 10 countries finalized a nine-month agreement to curb oil production by a combined 1.2 million bpd, rolling over their December 2018 deal.

At 9 AM ET, NYMEX August West Texas Intermediate futures were down $0.70 near $58.40 bbl, with the ICE September Brent contract $0.60 lower near 464.45 bbl. NYMEX August ULSD futures were down 1.8cts near $1.9355 gallon, and the August RBOB contract slid 2.55cts to $1.9050 gallon.

Oil futures moved lower Tuesday morning, weighed down by demand concerns after Monday’s release of bearish global manufacturing data, even as OPEC reached an agreement with partners outside the cartel on continuing supply cuts until March 31, 2020.

The deal was approved by Russia and nine other non- OPEC producers on Tuesday that are now expected to ratify the agreement. OPEC also surprised the markets by signing a long-proposed charter on cooperation with non-OPEC members, formalizing its alliance with Russia in the early hours Tuesday, even as the proposal faced opposing from some of the cartel’s long-standing members. “The nine-month extension is a recognition that the first quarter is likely to see soft demand and exiting in December would have been unwise,” said Saudi energy minister on Tuesday, adding that his country would continue to lead by example on the cuts.

OPEC+ largely exceeded market expectations by extending the current supply agreement for nine months instead of six, as it attempts to balance the market amid heightened concern over slowing global economy and the knock-on effect on fuel demand.

The U.S.–China agreement to resume trade talks reached over the weekend sparked a relief rally in global equities on Monday, sending S&P 500 to a fresh high and Dow Jones Industrial Average soaring to a near record. However, market analysts warn that trade frictions between the United States and China are likely long-lasting and the same structural risks in trade tensions between the world’s largest economies remain unresolved.

A series of bearish reports released on Monday showed a weakening global economy, with U.S. factory orders slumped to the lowest level since September 2016, while China’s manufacturing activity contracted for the first month in four months.

Global Purchasing Manager’s Index declined for a 14th straight month, to 49.4 in June, the longest decline on record, with the index falling to its lowest point since October 2012. The sharp contrast between the market’s optimism and the steep decline in global manufacturing highlight the market’s volatility in the coming months.