Morning Market Overview
New York Mercantile Exchange oil futures nearest to delivery and Intercontinental Exchange Brent futures traded in narrow ranges Monday morning, supported by tensions around Iran’s nuclear program, while strong U.S. economic data dampen expectations for a rate cut later this month. Near 9 AM ET, August West Texas Intermediate softened to $57.45 bbl and ICE September Brent firmed to $64.30 bbl.
NYMEX August RBOB futures were down 1.3cts at $1.9165 gallon, with the August ULSD contract unchanged at $1.9050 gallon. WTI futures pulled back on Monday after a better-than-expected U.S. jobs report lowered the likelihood the Federal Reserve would cut the federal funds rate later this month. Government data on Friday showed U.S. employment rebounded strongly in June, with 224,000 new jobs added—the most in five months. The latest expansion in employment sharply reduced expectations for a 50- basis point rate cut from the central bank.
According to Bloomberg, market participants placed the odds of rate cut at nearly 30% last week, but slashed these bets to just 8% after the latest government figures. The Federal Open Market Committee is scheduled to meet July 30-31 to debate the economy and interest rates. U.S. dollar rallied to a 96.89 three-week high on Friday in response to the jobs report, inching down in index trading early Monday, with a stronger dollar weighing on the U.S. crude benchmark.
Iran announced on Sunday it exceeded the uranium enrichment level allowed under the 2015 nuclear deal, ratcheting up tensions with the United States and countries in the region. “From today, we officially pass the limit of 3.67% for uranium enrichment,” said the Iranian government, while also threatening to keep reducing its commitments every 60 days unless European states resume trade relations with Iran.
In response to announcement, U.S. Secretary Mike Pompeo warned Tehran of additional sanctions and isolation. Uranium enrichment has been at the core of U.S.–Iran tensions after Trump administration unilaterally withdrew from an Obama-era nuclear agreement. Last month the United States nearly carried out a military strike against Iran, sending oil prices sharply higher on potential conflict in the region. One of the most recent spikes in tensions came last week as Iranian officials warned of retaliatory attack against British oil tankers, after the British navy seized a tanker with two million barrels of Iranian oil.
Separately, Baker Hughes reported the number of active oil rigs in the United States fell five last week to 788, pressing the rig count to a 17- month low. Data also showed that the domestic rig count for June was down 17 from the month prior and 87 fewer than the 1,056 counted in June 2018. U.S. operators continue to reduce the number of active rigs, as they aim to cut spending in the current year.