Oil retreats, but July set to log biggest monthly gain of the year

Oil futures edged lower Monday, with traders likely booking some profits after a solid run higher that has put the U.S. contract on pace for its biggest monthly rise of the year.

On the New York Mercantile Exchange, West Texas Intermediate crude for delivery in September

CLU7, -0.46%

 traded 25 cents, or 0.5%, lower at $49.46 a barrel, while September Brent crude

LCOU7, +2.21%

 declined 24 cents, or 0.5%, to $51.98 a barrel.

Both contracts had traded with gains earlier in the session, with WTI briefly topping $50 a barrel. The early Monday rally came on speculation the U.S. is considering stepping up sanctions against OPEC member Venezuela—a major exporter of oil to the U.S.—after a referendum over the weekend.

“This could result in a shortage of heavy oil for U.S. refineries given that Saudi Arabia is already shipping less oil to the U.S. Ultimately, however, all these factors led to an increase in speculative positions on rising oil prices,” analysts at Commerzbank said in a Monday note.

See: How Venezuela chaos could spark oil rally OPEC has failed to achieve

The Sunday vote will give President Nicolás Maduro’s government overwhelming powers to redraft the country’s constitution, but the opposition disputed the vote count and the Trump administration said the U.S. wouldn’t recognize the outcome. Ten people have died in clashes between protesters and state security forces in the aftermath of the referendum.

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However, the weakness for oil in Monday’s session is “nothing unusual,” said Samir Madani, co-founder of TankerTrackers.com and initiator of the #OOTT hashtag.

“Just some Monday morning profit-taking after a strong week,” he said. “[But] it will bounce again.”

Crude oil last week logged a weekly gain of 8.6%, its biggest weekly jump since early December, as prices got a lift from renewed production-curb commitments from OPEC members as well as the uncertainty in Venezuela ahead of the weekend vote, declining U.S. oil inventories, a weaker U.S. dollar and other factors, including, perhaps, cutbacks in capital spending plans by U.S. oil producers.

Read: What a constant stream of oil company spending cuts means for crude prices

“Besides the relentless declines in U.S. oil stocks, changed OPEC rhetoric, Nigerian production issues and the trouble regarding Venezuela, it would seem that the market has also taken a liking to hearing U.S. oil companies cutting their capital budgets,” wrote analysts at JBC Energy, in a Monday note. “In fact, one could say that for all intents and purposes it felt a bit like they were engaged in unintended OPEC-like market talk.”

That said, JBC noted that the announced cuts “were not exactly focused” on reducing shale operations and that production guidance “didn’t exactly suffer either.” In fact, many of the cuts were announced in the context of a mix of less exploration and continued cost-cutting efforts.

“In other words, we find it very hard to extract a bullish message out of these announcements,” the analysts wrote.

The sharp gains in recent weeks have put WTI on track for its biggest monthly jump since December, up 8% in July on the last trading of the month.

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In other energy products on Monday, September gasoline 

RBU7, +0.27%

 rose 0.5% to $1.6533 a gallon and September heating oil

HOU7, +0.21%

 gained 0.2% to $1.6448 a gallon.

September natural gas

NGU17, -3.09%

 fell 3.1% to $2.849 per million British thermal units.

—Jenny W. Hsu and Barbara Kollmeyer contributed to this article