Market Report & Analysis for 7/31/2019 Morning Edition

by | Jul 31, 2019 | EMI, Fuels & Markets, FutureRack, Industry News

Morning Market Overview

Oil Futures Gain Early Tuesday as Market Eyes Fed Rate Cut CRANBURY, N.J. (DTN)

Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced early Tuesday on expectations the Federal Reserve will cut interest rates for the first time since 2008, while optimism for appeasement between the United States and China over their trade disagreements underpins support as delegations from the two world powers meet in Shanghai.

Shortly after 9 AM ET, NYMEX September West Texas Intermediate futures were up $0.25 near $57.10 bbl, and ICE September Brent was $0.40 higher near $64.10 bbl, holding a $0.10 premium over the October contract. NYMEX August ULSD futures were up 1.15cts near $1.9225 gallon, trading at a more than 1cts discount to the September contract. NYMEX August RBOB futures were 1.4cts higher near $1.8775 gallon, a nearly 5cts premium to the September contract.

The Federal Open Market Committee today begins their two-day monetary policy meeting, with expectations overwhelmingly for the central bank to cut the federal funds rate 25 basis points to 2.25%. Markets were calling for as much as a 50-point cut in the key rate until the Labor Department earlier this month reported an unexpectedly large 224,000 gain in nonfarm employment for June.

The Labor Department is expected to show job gains in July at 166,000 when they report on Friday. The U.S. dollar reached a fresh two-month high in overnight index trading at 97.96 before paring the advance. The expected rate cut by the Fed follows signals from the European Central Bank earlier this month that a rate cut was coming in September that could be accompanied with monetary stimulus measures, as the Eurozone economy stalls.

Overnight, France reported second quarter Gross Domestic Product growth at a slower-than-expected 0.2% three-year low following a 0.3% annualized growth rate during the first three months of 2019. Eurozone second quarter GDP to be reported Wednesday morning is expected to show a 0.2% year-on- year growth rate, a six-year low if realized.

The European Union Commission reported economic sentiment for the Eurozone at 102.7 for July, down from 103.3 in June, but better than market expectations for a 102.5 reading. U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer are in Shanghai through Wednesday for trade negotiations with Vice Premier Liu He of China. The White House has dialed back expectations for a grand deal, with negotiations seen continuing for months. The trade dispute between the two economic powers has stalled world trade flow and economic growth, including in China.

Overnight, China’s Purchasing Manager’s Index for manufacturing will be released, with market expectations calling for a modest improvement to 49.5 from 49.4 in June. Readings below 50 reflect contraction. In the United States, the Conference Board will release the July reading on U.S. consumer confidence at 10 AM ET, which is expected to show a 3.5 point increase to 125 following an unexpected decline in June. At 4:30 PM ET, the American Petroleum Institute will publish U.S. oil supply statistics for the week-ended July 26, with the Energy Information Administration set to release its weekly data summary 10:30 AM ET Wednesday. DTN estimates a 3 million bbl draw from commercial crude inventory occurred during the week profiled, while gasoline stocks are seen to have declined by 1 million bbl.

Distillate inventory is projected to have increased 1 million bbl last week. Today’s trading comes ahead of the expirations of the ICE September Brent and NYMEX RBOB and ULSD futures contracts Wednesday afternoon.