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Oil futures ended lower Monday, turning south after the U.S. crude benchmark briefly touched the $70-a-barrel threshold for the first time in more than 2 1/2 years.
Prices took a directional cue from a fall in China’s crude-oil imports from a year ago, as traders weighed the potential for Iran nuclear deal that would likely lead to more oil in the world market.
“Crude’s rally came to a screeching halt overnight” after West Texas Intermediate tested the $70 level, as China’s imports dropped to a five-month low, said Edward Moya, senior market analyst at Oanda, in a market update. He pointed out that “China’s economic recovery is moderating but is still strong when compared to the rest of the world.”
The energy market also “remains fixated over the Iranian nuclear deal talks with both sides doing a lot of posturing,” said Moya, adding that U.S. State Secretary Antony Blinken has said it is unclear whether Iran is willing to do what is necessary to come back into compliance with the nuclear deal.
“At some point this week, a make-or-break moment will present itself over Iranian nuclear talks and that should help determine if bullish momentum continues to send oil much higher.” A deal would likely lead the U.S. to lift sanctions on Tehran.
“Both sides are incentivized to get a deal done, but if a breakthrough does not occur before the June 18th Iranian presidential elections, Brent crude could easily rally above the $75.00 level,” Moya said.
On Monday, West Texas Intermediate crude for July delivery
CL00,
CLN21,
fell 39 cents, or 0.6%, to settle at $69.23 a barrel on the New York Mercantile Exchange after hitting a session high of $70 in early action. WTI last traded at $70 or above in October 2018, based on action for the most-active contracts, according to FactSet.
August Brent crude
BRN00,
BRNQ21,
the global benchmark, lost 40 cents, or 0.6%, at $71.49 a barrel on ICE Futures Europe.
Read: Oil prices trade near 2-year high, but ‘jury is still out’ on demand recovery
Despite the retreat in prices, Brent crude has held ground above the key $70 mark, with that level continuing to find a “strong degree of support,” said Robbie Fraser, global research & analytics manager at Schneider Electric. “The Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, have rejected “calls to accelerate plans for unwinding major production cuts.”
At a meeting at the start of this month, OPEC+ agreed to keep its plan to gradually increase production through July in place.
“For most of the shale boom era, U.S. production has been the driving force behind OPEC+ limiting supply cuts, rather than fears around overheating the market,” Fraser said in a daily note. This time, however, “U.S. production response has been limited even at higher [oil] prices, meaning the pressure on OPEC+ to produce more and pressure prices is limited.”
Baker Hughes on Friday
BKR,
reported that the number of active U.S. drilling rigs was unchanged that week, implying that the higher prices of oil aren’t prompting U.S. producers to boost production. Also, the Energy Information Administration on Thursday reported that total oil production edged down by 200,000 barrels to 10.8 million barrels per day for the week ended May 28.
The “demand side continues to drive optimism” in the oil market, as “vaccine deployment and consumer confidence are helping create strong conditions for the summer travel season,” said Fraser.
Still, the China trade data released Monday helped to cool the market, analysts said.
The data showed crude imports over the first five months of 2021 rose 2.3% year over year, but that a May total of 9.69 million barrels a day was down from 9.86 million barrels a day in April and marked a fall of 14.6% year over year, said Warren Patterson, head of commodities strategy at ING, in a note.
The data “suggests that Chinese refiners are reluctant to import at these higher prices, and instead prefer to draw down inventories,” he said. “We will need to wait for industrial output data later in the month to see if this really is the case, but if it is, it would be the second month in a row where we have seen Chinese inventories edge lower.”
“Clearly, if we see Chinese refiners taking a step back from imports, this would be a bearish development for the market,” he said.
Back on Nymex, July gasoline
RBN21,
shed 0.8% to $2.19 a gallon, while July heating oil
HON21,
shed 0.2% to nearly $2.12 a gallon.
July natural gas
NGN21,
settled at $3.07 per million British thermal units, down 0.9%.
