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Oil prices move lower after U.S. futures touch $70 a barrel

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Oil futures moved lower on Monday, turning south after the U.S. crude benchmark touched the $70-a-barrel threshold for the first time in more than 2 1/2 years.

Still, global benchmark Brent crude 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
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.

In Monday dealings, West Texas Intermediate crude for July delivery

was down 16 cents, or 0.2%, at $69.46 a barrel on the New York Mercantile Exchange after hitting a session high of $70 in earlier action. WTI last traded at $70 or above in October 2018, based on action in most actively traded contracts, according to FactSet.

August Brent crude

the global benchmark, was down 19 cents, or 0.3%, at $71.70 a barrel on ICE Futures Europe.

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.

However, China trade data released early Monday may have helped cool the market, some 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 decline from 9.86 million barrels a day in April and 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
shed 0.3% to $2.20 a gallon, while July heating oil
added nearly 0.1% to $2.12 a gallon.

July natural gas
traded at $3.05 per million British thermal units, down almost 1.5%.

Read: Why summer cooling demand and Atlantic hurricanes don’t guarantee further gains for natural-gas prices

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