U.S. crude futures gained on Tuesday after flooding throughout the Midwest constrained crude flow from the main U.S. storage hub in Cushing, Oklahoma. U.S. West Texas Intermediate (WTI) futures settled at $59.14 a barrel, up 51 cents, or 0.9%, from its close on Friday before the long Memorial Day holiday weekend. “Flooding seems to have impacted distribution hubs around the United States, slowing stuff coming out of Cushing and creating a bid on WTI,” said Phillip Streible, senior market strategist at RJO Futures in Chicago. Flooded areas of Arkansas and Oklahoma were bracing for more rain that will feed the already swollen Arkansas River, forecasters said on Tuesday. Up to 19 inches (48 cm) of rain have fallen so far in parts of Oklahoma over the month of May, the National Weather Service said, with more on the way.
Meanwhile, Brent crude futures were largely steady, just 3 cents lower at $70.08 a barrel. The global benchmark repeatedly veered above and below the $70-mark in choppy trading, as prices were caught between fears of slowed economic growth and expectations that the Organization of the Petroleum Exporting Countries (OPEC) and its allies will extend their six-month deal to curb production. OPEC and its allies including Russia, known as OPEC+, are due to meet over June 25-26 to discuss output policy, but it remains unclear whether their production pact will be extended. “Saudi Arabia seems to be in favor” of extending production cuts as U.S. output rises, said Gene McGillian, vice president of market research at Tradition Energy. “The market would have to adjust downwardly to adjust for the barrels” if OPEC ended its cut of 1.2 million barrels per day (bpd). Brent futures last week registered a decline of 4.5% and WTI slid by 6.4% for its biggest weekly loss since December.
Last week’s oil-price drop came after the government reported U.S. crude oil inventories have risen to 476.8 million barrels, their highest since July 2017. Weekly inventory data this week has been delayed a day due to Monday’s Memorial Day holiday. However, globally supplies have tightened because of the OPEC+ cuts so far this year, with political tensions in the Middle East adding to the upward pressure on prices. U.S. sanctions have also largely taken Iranian and Venezuelan crude out of global markets. “There’s a geopolitical premium that’s helping to support prices,” said John Kilduff, an analyst at Again Capital LLC.
Investors remained concerned the escalating trade war between the United States and China could hit the global economy and dent fuel consumption. “The U.S.-China trade war isn’t getting any better and it’s really starting to weigh on growth,” said Bill Baruch, president of Blue Line Futures in Chicago. “Demand for crude could fall.”