EIA reported a build of 2.1 million barrels in US crude oil inventories

Recap: Oil prices traded higher on the initial opening, gaining support on reports that Venezuela may default on some of its contracted crude oil exports. The higher move was short lived, as a selling frenzy followed the release of the EIA report, with WTI reaching its lowest level in almost two months. The EIA reported an unexpected and unseasonable build of 2.1 million barrels in U.S. crude oil inventories. July WTI fell $1.28, or 1.9%, to a low of $64.27 a barrel, while Brent tumbled $1.14, or 1.5%, reaching a low of $74.46 a barrel. After the fallout from the EIA report, WTI staged a feeble attempt to recover losses, but the July contract was unable to trade back above the $65.00 mark. This spot contract settled at $64.73 a barrel, down 79 cents, or 1.21%. August Brent on the other hand experienced a remarkable recovery, trading back above unchanged before finishing the session basically unchanged at $75.36 a barrel, down 2 cents, or 0.03%.    

According to the EIA, U.S. gasoline stockpiles climbed 4.6 million barrels, while distillate stockpiles rose 2.2 million barrels. Forecasts were calling for a decline of 600,000 barrels for gasoline, along with a climb of 700,000 barrels for distillates. The gasoline number had an astonishing effect on RBOB prices, pushing the July contract as much as 1.9% lower on the day, to the lowest price ($2.0554) for a spot contract in almost a month.  July RBOB lost 1.7%, to settle at $2.07 a gallon, while July heating oil fell 0.7%, to settle at $2.127 a gallon.

Fundamental News:  Iran’s ambassador to the IAEA, Reza Najafi, said the country will not cooperate more fully with nuclear inspectors until a standoff over its nuclear agreement is resolved.  European powers have been working to salvage the agreement they signed in 2015 since US President Donald Trump decided to pull out of the agreement last month and said he would reimpose US sanctions on Iran.  Foreign and Finance Ministers from France, Britain and Germany have written to US officials to stress their commitment to upholding the agreement and to urge the US to spare EU firms active in Iran from secondary sanctions.  The ministers wrote that an Iranian withdrawal from the deal would further unsettle a region where additional conflicts would be disastrous.  

Separately, European refiners are winding down oil purchases from Iran after the US imposed sanctions on Iran.  Although European governments have not followed the US by imposing new sanctions, banks, insurers and shippers are gradually severing ties with Iran under pressure from the US restrictions.  A fall in crude trading between Europe and Iran could complicate efforts by European signatories of the nuclear deal to salvage the agreement.  Refiners, including France’s Total, Italy’s Eni and Saras, Spain’s Repsol and Cepsa and Greece’s Hellenic Petroleum are preparing to halt purchases of Iranian oil once sanctions begin.  These refiners account for most of Europe’s purchases of Iranian crude, which represents about a fifth of the country’s oil exports.

India’s Oil Minister, Dharmendra Pradhan, said Saudi Arabia’s Oil Minister, Khalid al-Falih, told him Saudi Arabia is revisiting its policy to cut oil output. He said Saudi Arabia and other OPEC producers are revisiting their output policy. 

Venezuela’s President Nicolas Maduro said the country could increase its output if OPEC eases its output cuts.  He said Venezuela must be ready to increase production by 500,000 bpd or 1 million bpd when OPEC authorizes it. 

Nigeria’s oil wells may be flowing again, however Royal Dutch Shell said attacks continue to halt output. 

US Census Bureau reported that US crude oil exports reached 1.756 million bpd in April compared with 1.671 million bpd in March. 

Early Market Call - as of 8:45 AM EDT

WTI - July $65.35, up 61 cents

RBOB - July $2.0894, up 1.94 cents

HO - July $2.1463, up 1.94 cents