Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
[George Orwel, DTN]
New York Mercantile Exchange (NYMEX) spot-month oil futures moved lower Monday morning, with West Texas Intermediate crude and Brent crude on the Intercontinental Exchange reversing from Friday’s two-month highs amid overbought market pressure, with renewed concern over rising U.S. oil production sparking profit-taking.
Analysts said a steady increase in the number of rigs drilling for oil in the United States suggests oil production will continue to grow. The downside has been curbed by strong global demand and heightened geopolitical risk that’s adding a premium in crude prices.
Baker Hughes on Friday reported the number of rigs drilling for oil rose by four in the week ended March 23 to 804 — a new three-year high, while up 57 year-to-date while 152 higher than a year ago.
Energy Information Administration (EIA) data shows U.S. crude production rose for the fifth straight week, up 26,000 barrels per day (bpd) during the week-ended March 16 to a fresh record high of 10.407 million bpd, while 1.278 million bpd above a year ago.
EIA data also showed U.S. total products supplied over the most recent four-week period averaged 20.5 million bpd during the week ended March 16, up 4.9% from the same period last year. The data also showed that over the last four-week period, gasoline product supplied averaged about 9.3 million bpd, 1.9% higher than a year prior.
“We are already seeing record gasoline demand and the [summer driving] season has not even begun,” said analyst Phil Flynn at Price Futures this morning. “We also saw those missiles fired from Yemen to Saudi Arabia so geopolitical risk is at play as well.”
In the Middle East, tension is growing between Saudi Arabia and Iran, the largest and third largest oil producing members of the Organization of the Petroleum Exporting Countries (OPEC). Saudi Arabia said on Sunday that their air defenses intercepted seven ballistic missiles fired by Yemen’s Iran-backed Houthi militia, some of which targeted Saudi capital Riyadh. This was the largest barrage of missiles fired since the Saudis went to war in Yemen in March 2015. Last week, Saudi Crown Prince Mohammed bin Salman met with President Donald Trump and reportedly discussed how to challenge Iran more aggressively.
Trump last week picked John Bolton as his national security advisor. Bolton is a foreign policy hawk who is opposed to the 2015 Iran nuclear accord.
In addition, the Trump administration Monday morning announced the expulsion of 60 Russian diplomats in response to the recent nerve-agent attack in Britain, a move that could trigger Russian retaliation.
In equities trade this morning, the Dow Jones Industrial Average rallied 400 points at the open, rebounding from last week’s steep losses on reports China and the Trump administration have quietly started to discuss how to resolve their trade dispute, easing concerns about a trade war. Treasury Secretary Steven Mnuchin also said on Fox News they are working to avoid a trade war.
The Dow dropped more than 1,000 points combined on Thursday and Friday amid tough rhetoric on tariffs between U.S. and Chinese officials. The dollar index weakened to a better than five-week low.
In early trade, NYMEX May WTI crude oil futures were down 33 cents to $65.55 barrel (bbl). ICE May Brent crude eased 36 cents to $70.09 bbl. April ULSD futures eased 0.34 cents to $2.0150 gallon. April RBOB futures fell 1.17 cents to $2.0219 gallon.
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