Oil futures: Crude drifts lower on Gaza talks, weaker refining margins
Quantum Commodity Intelligence – Crude oil futures Tuesday were drifting lower as focus pivoted towards ceasefire talks in the Middle East, but the outcome on the latest round of negotiations was far from certain.
Jul24 ICE Brent futures were trading at $86.19/b (1735 GMT), compared to Monday's settle of $87.20/b, while the Jun24 contract was trading at $87.84/b heading into the expiry.
At the same time Jun24 NYMEX WTI was trading at $81.74/b, versus Monday's settle of $82.63/b, as markets readjusted to lower levels after easing at the start of the week.
"Oil prices experienced a decline, driven by optimism surrounding the potential for a cease-fire in the Middle East, coupled with growing uncertainties regarding the timing of the US Federal Reserve's interest rate decisions," said Stephen Innes, managing partner at SPI Asset Management.
The US has urged Hamas to accept the latest deal after its officials were engaged in talks with negotiators in Cairo. But the on-ground situation remains tense after Israeli airstrikes killed more than two dozen people in Gaza's southern city of Rafah.
Prime Minister Benjamin Netanyahu also said on Tuesday that Israel still plans to launch an offensive in Rafah, coming despite international calls for restraint.
Separately, the US military confirmed that Yemen's Houthi rebels launched several missiles at a merchant vessel in the Red Sea on Monday, while a drone also targeted a US patrol ship.
The softer tone at the start of the week also came after exchange data showed money managers offloaded the equivalent of 95 million barrels in the week to 23 April.
Refining
Meanwhile, refining margins continued to come under pressure as tumbling distillate cracks weighed on refiners' profitability. The oversupply in Asia is particularly acute, opening the arbitrage to Europe.
The Oxford Institute for Energy Studies said Monday that Russian crude processing is expected to return to normal levels by the end of the second quarter after a spate of drone attacks.
European diesel cracks topped $30/b over ICE Brent at the height of the attacks in mid-March but have declined since to below $20/b, while 10ppm cracks in Asia have tumbled below $15/b.
On the economic front, this week's FOMC is unlikely to announce any immediate change in interest rates but will watched closely for possible clues on the timetable for a first rate cut.
Elsewhere, China's factory activity expanded for second consecutive month in April, albeit a slightly slower pace of growth. The official manufacturing purchasing managers index was at 50.4 in April versus 50.8 in March, with 50 marking the line for expansion.
