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

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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.

Oil prices gain, US crude little changed after inventory data

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KEY POINTS
  • West Texas Intermediate crude futures were up 6 cents at $57.68 by 0327 GMT, having fallen 3.3% on Tuesday.
  • Brent crude futures were up 25 cents at $64.60, or 0.4%. They ended down 3.2% in the previous session.
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Stacked rigs are seen along with other idled oil drilling equipment in Dickinson, North Dakota, June 26, 2015.
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Oil prices rose on Wednesday after steep falls in the previous session, although U.S. crude trailed gains for international benchmark Brent after U.S. crude inventories fell less than expected.

West Texas Intermediate crude futures were up 6 cents at $57.68 by 0327 GMT, having fallen 3.3% on Tuesday.

Brent crude futures were up 25 cents at $64.60, or 0.4%. They ended down 3.2% in the previous session.

Crude inventories fell by 1.4 million barrels in the week to July 12 to 460 million, industry group the American Petroleum Institute (API) said on Tuesday. That compared with analysts’ expectations for a decrease of 2.7 million barrels.

Official data is due out later today from the U.S. government’s Energy Information Administration (EIA). If it confirms the fall it will be the fifth consecutive weekly decline, the longest stretch since the beginning of 2018.

“Market participants are looking ahead to the weekly IEA oil inventory data for the U.S., which is expected to show yet another draw down,” Abhishek Kumar, head of analytics at Interfax Energy in London.

“Nevertheless, oil production in the Gulf of Mexico returning to normal following Hurricane Barry will limit price gains, ” Kumar said.

More than half the daily crude production in the U.S. Gulf of Mexico remained offline on Tuesday in the wake of Hurricane Barry, the U.S. drilling regulator said, as most oil companies were re-staffing facilities to resume production.

The Bureau of Safety and Environmental Enforcement said 1.1 million barrels per day of oil, or 58% of the region’s total, and 1.4 billion cubic feet per day of natural gas output remained shut.

The smaller than expected decline in crude stocks suggested production shut-ins caused by Hurricane Barry late last week had little impact on inventories.

Gasoline stocks also fell, declining by 476,000 barrels, compared with analysts’ expectations in a Reuters poll for a 925,000-barrel decline.

Distillate fuels stockpiles, which include diesel and heating oil, rose by 6.2 million barrels, compared with expectations for a 613,000-barrel gain, the API data showed.

Oil prices fell on Tuesday after U.S. President Donald Trump said progress has been made with Iran, signaling tensions could ease in the Middle East.

However, Iran later denied it was willing to negotiate over its ballistic missile program, contradicting a claim by U.S. Secretary of State Mike Pompeo, and appearing to undercut Trump’s statement.

Tensions between the United States and Iran over Tehran’s nuclear program have lent support to oil futures, given the potential for a price spike should the situation deteriorate.

Oil steady as US resumes Gulf of Mexico output

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KEY POINTS
  • Brent crude futures were up 7 cents, or 0.1%, at $66.55 a barrel by 0426 GMT.
  • U.S. West Texas Intermediate crude futures rose by 1 cent to $59.59 a barrel after falling earlier in the session.
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A worker grabs a nozzle at a PTT gas station in Bangkok, Thailand, January 5, 2016.
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Oil prices were steady on Tuesday after falling in the previous session as output in the U.S. Gulf of Mexico resumed after Hurricane Barry swept through over the weekend and as U.S. shale production is expected to rise to a record.

Brent crude futures were up 7 cents, or 0.1%, at $66.55 a barrel by 0426 GMT after dropping earlier in the session. They fell 0.4% overnight.

U.S. West Texas Intermediate crude futures rose by 1 cent to $59.59 a barrel after falling earlier in the session. The U.S. benchmark fell about 1% in the previous session.

Producers on Monday began restoring some of the roughly three-quarters of output that was shut at U.S. Gulf of Mexico platforms ahead of Hurricane Barry.

“The previous storm expectations didn’t pan out, which is good, but you have still got platforms with about 69 percent of output off,” said Phin Ziebell, senior economist at National Australia Bank.

“It was a bit of a shock to supply but a short term one. The market has returned to a bit of normality,” he said.

There was 1.3 million barrels per day (bpd) of oil production offline in the U.S. waters of the Gulf of Mexico on Monday, about 80,000 barrels fewer than on Sunday.

Workers also were returning to the more than 280 production platforms that had been evacuated. It can take several days for full production to be resumed after a storm leaves the Gulf of Mexico.

The market was also weighed down by signs of further increases in output from the United States, which has ridden a wave of shale oil production to rise to become the world’s biggest crude oil producer, ahead of traditional top producers Russia and Saudi Arabia.

U.S. oil output from seven major shale formations is expected to rise by about 49,000 bpd in August, to a record 8.55 million bpd, the U.S. Energy Information Administration said in its monthly drilling productivity report.

Overall U.S. crude production is now more than 12 million bpd.

The rising U.S. output will further undermine the efforts by Russia and Saudi Arabia to reduce global oil inventories by convincing suppliers both in the Organization of the Petroleum Exporting Countries and outside of OPEC to cut production.

The global supplier group, known as OPEC+, agreed earlier this month to extend their production cuts for another nine months.

“On the one hand you have the OPEC output cuts and there’s some geopolitical issues around Iran. But the demand outlook is muted and U.S. supply is perennially good from shale oil, which seems to have structurally changed the nature of the oil market,” said Ziebell.

Oil prices edge lower as China’s GDP growth slows

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KEY POINTS
  • Brent crude futures for September fell 21 cents to $66.51 a barrel by 0222 GMT.
  • U.S. crude for August was down 28 cents at $59.93 a barrel.
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Oil prices slipped on Monday after China posted its slowest quarterly economic growth in at least 27 years, reinforcing concerns about demand in the world’s largest crude oil importer.

Brent crude futures for September fell 21 cents to $66.51 a barrel by 0222 GMT while U.S. crude for August was down 28 cents at $59.93 a barrel. Both contracts last week posted their biggest weekly gains in three weeks on cuts in U.S. oil production and diplomatic tensions in the Middle East.

Refineries in the path of Tropical Storm Barry continued to operate despite flood threats while the storm has slashed U.S. Gulf of Mexico crude output by 73%, or 1.38 million barrels per day.

An unwinding of the risk premium from tropical storm Barry, lower oil demand forecasts and a lack of news from the Middle East may have led to a muted oil price reaction, Stephen Innes, managing partner at Bangkok-based Vanguard Markets, said.

China’s economic growth slowed to 6.2% in the second quarter from a year earlier, in line with analysts’ expectations, with demand at home and abroad faltering as the Sino-U.S. trade war bites.

Still, China’s industrial output and retail sales beat forecasts, “suggesting that the economy in China is healthier than we previously been pricing,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

In the Middle East, Iranian President Hassan Rouhani said in a televised speech on Sunday that Iran is ready to hold talks with the United States if Washington lifts sanctions and returns to the 2015 nuclear deal it quit last year.

Meanwhile Britain has offered to facilitate the release of the detained Iranian oil tanker Grace 1 if Tehran gave guarantees that it would not go to Syria.

Oil near six-week highs amid Gulf of Mexico storm, Middle East tensions

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KEY POINTS
  • Brent crude futures were up 29 cents, or 0.4%, at $66.81 per barrel by 0300 GMT.
  • U.S. West Texas Intermediate (WTI) crude futures were up 31 cents, or 0.5%, at $60.51 a barrel.
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An oil refinery in Pascagoula, Miss.
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Oil prices rose on Friday, hovering near six-week highs, as U.S. oil producers in the Gulf of Mexico cut more than half their output in the face of a tropical storm and as tensions continued to simmer in the Middle East.

Brent crude futures were up 29 cents, or 0.4%, at $66.81 per barrel by 0300 GMT. The international benchmark settled down 0.7% on Thursday after hitting its highest since May 30 at $67.52 a barrel.

U.S. West Texas Intermediate (WTI) crude futures were up 31 cents, or 0.5%, at $60.51 a barrel. The U.S. benchmark marked its highest level since May 23 in the previous session at $60.94.

By Thursday, oil companies in the Gulf of Mexico had cut more than 1 million barrels per day (bpd) of output, or 53% of the region’s production, due to Tropical Storm Barry which could make landfall Saturday on the Louisiana coast.

The storm was forecast to become a category one hurricane with at least 74-mile-per hour (119 km-per-hour) winds.

“Brent crude oil … extended its gains as storms in the Gulf of Mexico halted production of oil and U.S. oil inventories continued to recede more than expected,” ANZ Bank said in a note.

U.S. crude oil inventories have decreased for four consecutive weeks. Crude stocks fell 9.5 million barrels in the week to July 5, the Energy Information Administration (EIA) said, a drop that was more than triple the 3.1 million-barrel draw expected by analysts.

Kim Kwang-rae, commodity analyst at Samsung Futures in Seoul, said a sharp drop in U.S. crude stocks and geopolitical risks are expected to keep both Brent and WTI at current levels.

“As geopolitical risks involving Iran are likely to persist, that would support WTI to stay above $60 a barrel, while Brent is expected to stay above $65 per barrel but below $70 for the time being, ” Kim said.

Iran’s alleged attempt to block a British-owned tanker heightened tensions in the Middle East in the wake of attacks on tankers and the downing of U.S. drone by Iran in June.

“While a full-scale military conflict remains the least likely scenario, the strong increases for cost of insurance will make for a most costly transportation of crude and see new routes explored, delaying crude arrivals,” said Edward Moya, senior market analyst at OANDA in New York.

But a lower 2020 oil demand outlook from the Organization of the Petroleum Exporting Countries kept price gains in check. OPEC said the world would need 29.27 million bpd of crude from its 14 members in 2020, down 1.34 million bpd this year.