Oil gains a fifth day after US stockpile drop amid rate optimism

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Reuters
KEY POINTS
  • Brent crude was up 44 cents, or 0.7%, at $65.16 a barrel by 0324 GMT.
  • U.S. West Texas Intermediate crude gained 41 cents, or 0.7%, to $58.46 a barrel.
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Jean-Paul Pelissier | Reuters

Oil prices rose for a fifth day on Wednesday, buoyed by a bigger-than-expected drop in U.S. inventories and as investors awaited a widely expected cut in interest rates by the Federal Reserve, the first in more than 10 years.

Brent crude was up 44 cents, or 0.7%, at $65.16 a barrel by 0324 GMT.

U.S. West Texas Intermediate crude gained 41 cents, or 0.7%, to $58.46 a barrel.

“The market is quite optimistic leading into what the Fed is going to do on interest rates and as a result of that we’ll see more demand,” Jonathan Barratt, chief investment officer at Probis Group in Sydney, said by phone, referring to the widely expected cut.

Central bankers in the United States began their two-day meeting on Tuesday and were expected to lower borrowing costs for the first time since the depths of the financial crisis more than a decade ago.

U.S. consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation that cemented expectations of Fed rate cuts.

U.S. President Donald Trump on Tuesday reiterated his call for the Fed to make a large interest rate cut. That would be an unlikely move by the central bankers, Barratt said.

Despite the gains in prices, Brent is set to ease in July due to ongoing worries about demand, heading for a decline of about 2%, while WTI is down 1 cent.

Still, U.S. inventories have been falling in recent weeks suggesting demand concerns are overstated.

Crude stockpiles fell again last week, along with gasoline and distillate inventories, data from industry group the American Petroleum Institute (API) showed on Tuesday.

“There is a definitive seasonal trend emerging as inventory draws continue to beat analysts’ expectations by a mile suggesting analysts have grossly underestimated consumption and the breadth of seasonal demand this year,” VM Markets Pte said in a note.

Crude inventories fell by 6 million barrels in the week ended July 26 to 443 million barrels, compared with analysts’ expectations in a Reuters poll for a decrease of 2.6 million barrels, the API data showed.

If confirmed by U.S. government data on Wednesday morning, the decline would put crude stocks down for a seventh week in a row. That would be longest stretch since they fell for a record 10 consecutive weeks ending in January 2018.

Total crude stockpiles, however, would still be about 3% higher than the five-year average.

Oil prices rise amid expectations that the US Federal Reserve will cut rates

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Reuters
KEY POINTS
  • Brent crude rose 33 cents, or 0.5%, to $64.04 a barrel by 0435 GMT, after gaining 0.4% the previous session.
  • U.S. crude was up 30 cents or 0.5%, at $57.17 a barrel, having risen 1.2% on Monday.
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Dan Riedlhuber | Reuters

Oil prices rose for a fourth day on Tuesday on optimism the U.S. Federal Reserve will this week cut interest rates for the first time in more than ten years, which should support economic and fuel demand growth in the world’s biggest oil user.

Brent crude rose 33 cents, or 0.5%, to $64.04 a barrel by 0435 GMT, after gaining 0.4% the previous session.

U.S. crude was up 30 cents or 0.5%, at $57.17 a barrel, having risen 1.2% on Monday.

So-called dovish monetary policy in the United States, where the central bank reduces interest rates, would “support a continuation in global expansionary activities and fuel demand growth” for the second half of 2019, Benjamin Lu, an analyst at Phillip Futures in Singapore, said in a note.

“If the Fed is a little more dovish and prices in a 75 basis points cut … we might see oil pushing up towards $60,” Lu said by phone, referring to U.S. crude.

Still, “demand side concerns are the shadow over oil prices,” he added.

U.S. central bankers will begin their two-day meeting later on Tuesday and are expected to lower borrowing costs for the first time since the depths of the financial crisis more than a decade ago.

U.S. President Donald Trump said a small rate cut “is not enough.”

Economic growth in the United States slowed less than expected in the second quarter, strengthening the outlook for oil consumption but, elsewhere, disappointing economic data has increased concerns about slower growth.

U.S. and Chinese negotiators meet this week for their first in-person talks since agreeing to a truce to their trade dispute at the Group of 20 meeting last month, with some optimistic that the discussions will help bridge the gap between the world’s two largest economies and biggest oil consumers.

However, Trump said China might not want to sign a trade deal until after the 2020 U.S. election.

Supply risks are still a concern as tensions remained high around the Strait of Hormuz, through which about a fifth of the world’s oil passes.

Tensions spiked between Iran and the West after Iranian commandos seized a British-flagged oil tanker in the Gulf this month in apparent retaliation for the capture of an Iranian tanker by British forces near Gibraltar.

Oil falls on worries over growth outlook, positive news on Iran

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Reuters
KEY POINTS
  • Brent crude futures were down by 23 cents, or 0.4%, at $63.23 a barrel by 0427 GMT. Prices rose 1.6% last week.
  • U.S. West Texas Intermediate crude was down by 9 cents, or 0.2%, at $56.11 a barrel. WTI gained 1% last week.
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Oil prices fell on Monday as investors fretted over the outlook for global economic growth, while weekend talks between Iran and major powers ended on a generally positive note, suggesting an easing of tensions in the Middle East.

Brent crude futures were down by 23 cents, or 0.4%, at $63.23 a barrel by 0427 GMT. Prices rose 1.6% last week.

U.S. West Texas Intermediate crude was down by 9 cents, or 0.2%, at $56.11 a barrel. WTI gained 1% last week.

Economic growth in the United States slowed less than expected in the second quarter with a boom in consumer spending, strengthening the outlook for oil consumption.

But growth outside the U.S. is slowing faster, due partly to the impact of the U.S.-China trade war.

“For global growth, the outlook there is looking shakier … it’s not disastrous but it’s not shooting the lights out,” said Phin Ziebell, senior economist at National Australia Bank.

“Where does oil demand fit in a world where it looks like this big boom is now starting to tail off,” he said, pointing also to recent sluggish car sales around the world.

Senior U.S. and Chinese negotiators are meeting this week for the first time since trade talks broke down in May, as they struggle to resolve deep differences. Expectations for progress during the two-day Shanghai meeting are low.

Traders and investors are also focused on meetings of major central banks — including the U.S. Federal Reserve, which is expected to lower interest rates.

An emergency meeting with parties to Iran’s 2015 nuclear deal was constructive but there are unresolved issues and Tehran will continue to reduce its nuclear commitments if Europeans fail to salvage the pact, Iranian official Abbas Araqchi said on Sunday.

The meeting did not include the United States, which pulled out of the agreement in May 2018 and slapped sanctions back on Iranian oil exports.

Still, tensions remain high around the Strait of Hormuz, the world’s most important oil passageway, as Iran refused to release a British-flagged tanker it seized but granted India consular access to 18 Indian crew members.

Denmark welcomed the British government’s proposal for a European-led naval mission to ensure safe shipping through the strait.

The United States is also working on a multinational maritime security initiative in the Gulf.

Oil prices nudge up as geopolitical tensions counter sluggish demand

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Reuters
KEY POINTS
  • Brent crude futures were up 7 cents, or 0.1%, at $63.46 a barrel by 0457 GMT. They rose 0.3% in the previous session.
  • U.S. West Texas Intermediate crude was 18 cents higher, or 0.3%, at $56.20 a barrel, after gaining 0.25% overnight.
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Jason Reed | Reuters

Oil prices edged higher on Friday on worries about Middle East tensions, offset by a flagging global economic growth outlook amid the U.S.China trade war.

Brent crude futures were up 7 cents, or 0.1%, at $63.46 a barrel by 0457 GMT. They rose 0.3% in the previous session.

U.S. West Texas Intermediate crude was 18 cents higher, or 0.3%, at $56.20 a barrel, after gaining 0.25% overnight.

“Growing challenges in the macroeconomic environment have kept bullish bets in check as risk appetites remain soft over potential weakness in global fuel demand,” said Benjamin Lu, commodities analyst at Singapore-based brokerage Phillip Futures.

A global economic growth rut risks deepening, despite expectations that major central banks will cut rates or ease policy further, according to Reuters polls of over 500 economists who remain worried about the U.S.-China trade war.

Increasing pessimism is clear from the latest polls taken July 1-24, which show the growth outlook for nearly 90% of over 45 economies polled was either downgraded or left unchanged. That applied not just to this year but also 2020.

While concerns over Middle East supply disruptions have led to recent price spikes, oil has generally been under pressure from worries about global economic growth amid growing signs of harm from the rumbling Sino-U.S. trade war over the past year.

“Bullish wagers will be held hostage to the soggy global growth outlook,” Stephen Innes, managing partner at Vanguard Markets, said in a note.

A week after Iran seized a British-flagged tanker in the Gulf, Britain has sent a warship to accompany all British-flagged vessels through the Strait of Hormuz, a change in policy announced on Thursday after the government previously said it did not have resources to do so.

U.S. Secretary of State Mike Pompeo said in a television interview on Thursday that he would go to Iran for talks if it was necessary, amid the tensions between Tehran and Washington.

Oil advances amid concerns in the Middle East, but weak demand outlook caps gains

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Reuters
KEY POINTS
  • Brent crude futures rose 17 cents, or 0.27%, to $63.35 a barrel by 0300 GMT, after dropping 1% overnight – the first fall in four sessions.
  • U.S. West Texas Intermediate crude were up 18 cents, or 0.3%, at $56.06 a barrel, having dropped 1.6% in the previous session.
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A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.
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Oil prices edged higher on Thursday amid lingering Middle East tensions and after U.S. crude stocks dropped more than expected, but gains were stemmed by a fragile demand outlook amid more signs of slowing global economic growth.

Brent crude futures rose 17 cents, or 0.27%, to $63.35 a barrel by 0300 GMT, after dropping 1% overnight – the first fall in four sessions.

U.S. West Texas Intermediate crude were up 18 cents, or 0.3%, at $56.06 a barrel, having dropped 1.6% in the previous session.

“We see it as a current tug of war between the bull case of OPEC production cuts, political risk in the Gulf and the recent reduction in crude inventories, versus the bear case of slowing global growth and a ramp-up in U.S. production,” said Hue Frame, managing director at Frame Funds in Sydney.

“We think the Middle East tensions will more than likely exist for the foreseeable future. While they exist, the tug of war will more likely continue in the crude market until the economic data either deteriorates further or rebounds.”

Meanwhile, U.S. crude stocks fell by nearly 11 million barrels last week, way more than analysts’ expectations for a drop of 4 million barrels.

But oil output from seven major shale formations in the United States is expected to rise in August to a record 8.55 million barrels per day.

The overall sentiment in the oil market has darkened as investors worry that slowing global economic growth will weaken demand for oil.

A series of purchasing manager index readings in the United States and Europe were weaker than expected, confirming concerns about slower economic growth amid a trade war between the United States and China.

“Global growth concerns are driving energy prices lower as forecasts keep getting downgraded even as the U.S. will be sending a trade team to China next week,” Alfonso Esparza, senior market analyst at OANDA, said in a note.

Set against those worries are ongoing tensions in the Middle East following the seizure of a British-flagged tanker in the Gulf by Iranian forces last week.

The military adviser to Iran’s supreme leader was quoted on Wednesday as saying that any change in the status of the Strait of Hormuz, which Tehran says it protects, would open the door to a dangerous confrontation.

Britain, meanwhile, gained initial support from France, Italy and Denmark for its plan for a European-led naval mission to ensure safe shipping in the Gulf.

Correction: An earlier version of this Reuters article incorrectly described the change in U.S. crude inventories. It was, in fact, a drop of nearly 11 million barrels last week.