Morning Market Overview
New York Mercantile Exchange oil futures nearest to delivery and Intercontinental Exchange Brent futures moved shallowly mixed in early trade Monday ahead of a highly anticipated Federal Reserve policy announcement this week and U.S.-China trade talks, while a strengthening U.S. dollar continues to weigh on the contracts.
The U.S. dollar reached a 97.9 two-month high in overnight index trading. Nearing the 9 AM ET hour, NYMEX September West Texas Intermediate firmed at $56.25 bbl, with the ICE September contract down $0.15 near $63.30 ahead of contract expiration Wednesday afternoon. October Brent futures are trading near parity with the expiring September contract. NYMEX August ULSD futures were up 0.45cts near $1.9090 gallon, trading at a 90 points discount to the September contract ahead of contract expiration Wednesday afternoon.
NYMEX August RBOB futures are down 0.85cts near $1.8660 gallon, a more than 5cts premium to the September contract ahead of expiration Wednesday afternoon. Oil futures are trading in narrow ranges early Monday, while investors turn focus to a Federal Reserve rate-setting meeting scheduled for Tuesday-Wednesday. Market participants are broadly expecting the central bank to lower its benchmark interest rate by 25 basis points, making it the first rate cut in nearly a decade.
Fed officials are set to release a decision at 2 PM ET Wednesday at the end of their two days of talks. According to CME Group, investors are pricing in almost 70 basis points of monetary easing through the end of the year. The Bureau of Economic Analysis said on Friday U.S. economy slowed 1% in the second quarter from the first three months of the year to 2.1% annualized growth, but topped market expectations.
Still, economic growth outside the United States continues to show signs of accelerated weakness with global PMIs on decline ever since the start of the U.S.–China trade war. Trade delegations from both countries are expected to meet this week in Shanghai to resume talks for a tariff deal amid much lowered expectations for a swift resolution. WTI gains slightly outpaced international benchmark after Baker Hughes on Friday reported a fourth consecutive week of declines in the domestic oil rig-count. Industry data showed rigs last week fell to the lowest count in seventeen months, indicating a continued slowdown in U.S. drilling activity.
So far this month, the rig count has dropped by 17 and versus a year ago the count is down 85. Market analysts believe that relatively low oil prices are forcing U.S. drillers to focus on already drilled oil wells rather than developing new ones.