Futures Movers: U.S. oil heads for worst May since 2012 and worst monthly decline since November

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Markets/commodities reporter

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News editor

Oil futures headed lower Friday and for the week and month as U.S. tariffs on Mexico put a fresh spark in concerns for the global economy and demand for oil, also sending U.S. stock markets sharply lower.

At the same time, more evidence this week of solid U.S. oil supplies continued to complicate the management of the Organization of the Petroleum Exporting Countries’ own production cut, a policy due for review later in June.

“Adding on to an already bearish trend, President [Donald] Trump announced plans for a 5% tariff on Mexican imports, with framework for continued escalation related to border security,” said Robbie Fraser, senior commodity analyst at Schneider Electric. “The move will add to existing trade and economic concerns, but also carries specific risks for crude and products, with Mexico being a key energy trade partner.”

West Texas Intermediate crude for July delivery

CLN19, -2.83%

 on the New York Mercantile Exchange traded down $1.52, or 2.7%, at $55.07 a barrel. Front-month contract prices were down nearly 6% for the week and some 13% for May, according to Dow Jones Market Data. At current levels, prices were on pace for their worst monthly decline since November, when it skidded 22%, and its worst May drop since 2012, when the most-active contract fell more than 17%.

Global benchmark July Brent

BRNN19, -3.26%

was down $2.17, or 3.3%, at $64.70 a barrel on ICE Futures Europe, ahead of its expiration at the day’s settlement. Front-month contract prices have lost more than 9% month to date and will wrap up the week off more than 5%.

Both WTI and Brent crude were poised for their lowest settlements since mid-February.

The U.S. may allow some countries to continue importing Iranian oil, despite the expiration of sanctions waivers in early May, according to a report from The Wall Street Journal, contributing to further pressure on prices. The report said countries that haven’t yet hit a U.S. limit on imports of Iranian oil can continue to trade until they reach the previously negotiated limit.

“Traders have been told that the goal was to get Iranian oil exports to zero,” said Phil Flynn, senior market analyst at Price Futures Group. “The last time President Trump granted waivers to Iranian oil buyers it caused one of the biggest selloffs in oil history, and traders and producers still have that etched in their minds.”

For now, however, demand worries have a grip in the energy futures markets after Trump unexpectedly announced the tariffs on goods from Mexico in a tweet late Thursday. The move aims to strong-arm Mexico to stop the flow of illegal immigrants into the U.S. He said the tariffs will rise to 10% on July 1 if the crisis persists, and by another 5% for every successive month, up to 25% by Oct. 1.

Against that backdrop, stock markets saw deep losses Friday, tugging all so-called risk markets, including oil, along for the ride.

“Trade tensions and worries about a possible slowdown if not a recession, had a detrimental effect on oil prices, as demand for black gold could drop,” said Peter Iosif, senior research analyst at IronFX.

As for supply, the Energy Information Administration on Thursday reported that U.S. crude supplies edged lower by a much less-than-expected 300,000 barrels for the week ended May 24 and estimated that domestic production rose by 100,000 barrels to 12.3 million barrels a day that week.

Meanwhile, top oil exporter Saudi Arabia has raised production in May, a Reuters survey found, but not by enough to compensate for lower Iranian exports after the United States clamped down on Tehran.

The 14-member OPEC pumped 30.17 million barrels per day (bpd) in May, the survey showed, down 60,000 bpd from April and the lowest OPEC total since 2015, the Reuters survey showed.

Meanwhile, natural-gas futures extend declines into a second straight session. The EIA Thursday reported that domestic supplies of natural gas rose by a larger-than-expected 114 billion cubic feet for the week ended May 24.

July natural gas

NGN19, -2.39%

 was down 6.2 cents, or 2.5%, at $2.484 per million British thermal units, with the contract poised for a weekly loss of 4.8% and monthly decline of around 5%.

Among the oil products, June gasoline

RBM19, -2.25%

 lost 4.4 cents, or 2.3%, to $1.835 a gallon, with the contract down 5% for the week and down 11% for the month. June heating oil

HOM19, -2.29%

 shed 3.9 cents, or 2%, to $1.876 a gallon, looking at a loss of 4.8% for the week and down nearly 10% for the month. The June contracts expire at the day’s settlement.

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