Crude and Refined Products Weakening

Tuesday, July 2, 2019

Crude oil and refined products are weakening across the board on Tuesday, amid a Saudi Arabian plan to cut crude prices next month, unsupportive economic data releases, and losses in major US equity index futures, but despite an extension of the output cut agreement until March 2020 by non-OPEC parties, strength in European and Asian stocks and a depreciation in the US dollar.

According to Reuters, non-OPEC producers agreed to extend the current output cut of 1.2mb/d for another 9 months in their meeting today, after OPEC producers made that decision yesterday.

Reuters sources reported that Saudi Arabia is set to reduce its August prices for most crude grades it sells to Asia, by $0.03/bbl to $0.05/bbl, which would be the kingdom’s first price reduction to Asian customers in five months.

In other news, a document seen by Reuters today indicated that China increased crude oil import quotas for mostly private refiners for the rest of this year, allowing them to add about 56.85 million in imported crude volume. In separate news, the Iraqi oil ministry said today that Iraqi oil exports fell to 3.52mb/d in June, down slightly from 3.57mb/d in May.

Asian and European stocks are seeing modest gains this morning, despite lackluster economic data releases for Europe. The UK construction PMI saw a surprise decline last month, from 48.6 to 43.1. Also discouraging, retail sales in Germany dropped unexpectedly in May, by 0.6% month-on-month, while a 0.7% increase was expected, but after a downwardly revised 1.0% decline in the previous month. The UK Nationwide HPI rose by 0.1% month-over-month in June, but this is below an expected growth rate of 0.2%. Inflationary pressures remained subdued in Europe, as the PPI for the Eurozone fell by 0.1% in May, while expectations were for no change.

Crude complex futures strengthened yesterday, amid news that OPEC agreed to extend the OPEC+ output deal for another 9 months, gains in US equities following a thaw in US-China trade relations, indications of Russia over-complying with the OPEC+ deal, and news that Iran breached its uranium limit, but despite a stronger US dollar and the resumption of clean Russian oil flows. WTI added 62 cents for a $59.09 a barrel settlement, Brent crude rose 32 cents to close at $65.06 a barrel, heating oil closed 1.44 cents higher at $1.9538 per gallon, gasoline strengthened 3.39 cents to settle at $1.9305 per gallon and natural gas futures fell 4.1 cents to close at $2.267 per MMBTU.

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