With peak driving season commencing today coupled with Trump’s probable intention to avoid a climate control agreement, we may well see crude oil benchmark futures prices steadily rising over the next three months leading to a significant boost for USA and Russian shale oil drillers. But therein lies the catch twenty two dilemma - more shale oil to market equals increased supply to an already over-supplied global market. The crude oil market and its importance to the world economy is often nuanced with such difficulties and balancing the supply – demand equilibrium is never an easy task.
Oil futures rose early today from a three-week low touched the previous session, buoyed by expectations the United States could pull out of a global climate accord and by a report that showed U.S. crude stockpiles had fallen more than expected.
Trump said he would announce later on today a decision on whether to keep the United States in a global pact to fight climate change, as a source close to the matter said he was preparing to pull out of the Paris agreement.
"If he actually withdraws the U.S from the climate accord, this would signal his intention to further roll-back emission regulations that would favour the use and demand of fossil fuels, thus giving a much needed boost to oil prices," said Jonathan Chan, investment analyst at Phillip Futures in Singapore.
Brent crude futures for July were up 39 cents, or 0.8 percent, at $51.15 a barrel by 0552 GMT, after trading higher earlier.
Yesterday, they fell $1.53, or 3 percent, to settle at $50.31 a barrel on their last day as the front-month contract. It was Brent's lowest close since May 10 and the contract dropped 2.7 percent last month, the third monthly decline.
U.S. West Texas Intermediate crude futures were up 40 cents, or 0.8 percent, $48.72 a barrel.
They dropped $1.34, or 2.7 percent, in the previous session to settle at $48.32 per barrel, the lowest close since May 12. The U.S. benchmark also fell for a third month in May, declining 2 percent.
Data from the American Petroleum Institute (API) showed crude inventories were down by 8.7 million barrels at 513.2 million in the week to May 26. That compared with analyst expectations for a decrease of 2.5 million barrels.
Further gains may be limited for the two major oil benchmarks as bearish news keeps coming from the Organization of the Petroleum Exporting Countries
(OPEC) and other producers including Russia that are locked in a battle against rising shale production in their efforts to boost prices.
Oil futures have given up all the gains posted in advance of last week's agreement between OPEC and non-OPEC producers to extend a production cut for a further nine months.
Output from OPEC rose in May, the first monthly increase this year, a recent survey found.
Higher supply from Nigeria and Libya, OPEC members that are exempt from the production-cutting deal, offset improved compliance by others.
A day later than normal due to Monday’s national holiday we will see the EIA’s stockpile report at 11am GMT today. Invariably, price action just prior and after its release will be extreme as is always the case leading to opportunities for astute traders on the right side of the trade, or both sides of the trade depending upon timing.
Written by:
Robert Mackintosh
Chief Trader - Global ETF Division
(client accounts: https://myaccount.fortisimtrade.com)
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