Market Report & Analysis for 8/1/2019 Morning Edition
Morning Market Overview
Oil futures nearest delivery on the New York Mercantile Exchange and Intercontinental Exchange Brent crude extended gains in early trade Wednesday, finding support from another bullish draw in U.S. crude inventories and on an expected rate cut by the Federal Reserve, while a joint Russo Iranian military drill in the Strait of Hormuz added to the bullishness.
At 9 AM ET, NYMEX September West Texas Intermediate futures were up $0.50 at $58.55 bbl, with the ICE September Brent contract also $0.50 higher near $65.20 ahead of expiration this afternoon. October Brent was trading at near parity with the expiring contract. NYMEX August ULSD futures were 1.6cts higher at $1.96 gallon, trading at a 1cts discount to the September contract ahead of expiration this afternoon.
NYMEX August RBOB futures were 1cts higher near $1.9070 ahead of expiration, a nearly 5cts premium to the September contract. Oil futures settled at two-week highs on Tuesday, gaining on expectations of a first in a decade rate cut from the Federal Reserve, while a bullish supply report from American Petroleum Institute brought in additional buying interest post-settlement. API once again reported a larger-than-expected drawdown in U.S. commercial crude inventories, while also detailing sizable declines in petroleum products during the week ended July 26.
API figures showed crude supply in the United States tumbled 6.025 million bbl, more than twice the calls for a drop of 3 million bbl in the profiled week. In refined products, data showed gasoline inventories dropped 3.135 million bbl, more than three times an expected 1 million bbl draw, and distillate stockpiles fell 890,000 bbl versus calls for a 1 million bbl build. U.S. Energy Information Administration will report on domestic crude and petroleum supplies 10.30 AM ET. Internationally, overnight reports indicate Iran reached an agreement with Russia for joint naval exercises in the Strait of Hormuz and the Persian Gulf, further stirring up tensions around the vital shipping passage.
“The Iranian forces had signed a contract for a joint patrolling of the Straits with the Russian Minister of Defense,” said Commander of Iranian Navy Hossein Khanzadi. The announcement comes after representatives from United Kingdom invited the United States, France and Germany to form a military alliance to safeguard the passage through the Strait—a move Tehran unequivocally opposed, according to Reuters. The crude oil gains also come ahead of a highly anticipated announcement of a rate cut by the Federal Reserve this afternoon.
Markets overwhelmingly expect a 25 point basis reduction in the federal funds from the current 2.5%, with additional rate cut is also seen in September. If announced, the policy shift would be the first lowering of borrowing costs since the financial crisis of 2008. The expected rate cut is likely to boost economic growth and manufacturing exports, but also raises concerns over the long-term health of the U.S. economy. Last week, government data showed the domestic economy expanded at a 2.1% annualized growth rate during the second quarter, down 1% from the January to March pace.
