Oil prices slip as economic growth concerns counter tighter supplies

CNBC

  • U.S. industry start to feel pain of tariffs — survey.
  • OPEC warns of economic slowdown, cuts oil demand forecast.
  • But supply tightens as U.S. sanctions against Iran loom.
  • U.S. crude stocks, output drop.

Oil prices fell on Thursday, reversing some of the strong gains from the previous session, as economic concerns raised doubts about ongoing fuel demand growth.

U.S. West Texas Intermediate (WTI) crude futures were at $69.91 per barrel at 0220 GMT, down 46 cents, or 0.6 percent, from their last settlement.

Brent crude futures slipped 38 cents, or 0.5 percent, to $79.36 a barrel.

The falls came on the back of a potential slowdown in fuel demand growth because of trade disputes between the United States and China as well as emerging market turmoil.

American companies in China are being hurt by tariffs in the growing trade war between Washington and Beijing, according to a survey of hundreds of firms, prompting the U.S. business lobbies behind the poll to urge the Trump administration to reconsider its approach.

The Trump administration has invited Chinese officials to restart trade talks, just as Washington prepares to escalate the U.S.-China trade war with tariffs on $200 billion worth of Chinese goods.

The Organization of the Petroleum Exporting Countries (OPEC) on Wednesday reduced its forecast for 2019 global oil demand growth, pointing to economic risks.

In its monthly report, OPEC said world oil demand next year would rise by 1.41 million barrels per day (bpd), 20,000 bpd less than last month and the second consecutive reduction in the forecast.

Tighter supply

Despite this, the short-term outlook for oil markets is for tighter supply.

Brent rose above $80 per barrel the previous session for the first time since May, spurred by expectations that U.S. sanctions against Iran’s oil exports, which will start in November, will tighten global markets.

WTI was pushed over $70 the previous session due to falling crude inventory and production levels.

U.S. crude inventories fell 5.3 million barrels in the week to Sept. 7 to 396.2 million barrels, the lowest since February 2015 and about 3 percent below the five-year average for this time of year, the U.S. Energy Information Administration (EIA) said on Wednesday.

Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore, said the inventory data showed “a much deeper drop than analyst’s expectations.”

U.S. crude oil production fell by 100,000 bpd, to 10.9 million bpd, as the industry faces pipeline capacity constraints.

Innes said the slight dips on Thursday came as rising refined product inventories, which the EIA also reported, “slightly dampened market overexuberance” as it indicated that U.S. fuel demand may be weakening.

Gasoline stocks rose 1.3 million barrels, while distillate stockpiles , which include diesel and heating oil, climbed by 6.2 million barrels, the EIA data showed.

Oil prices rise on lower U.S. crude inventories, looming Iran sanctions

CNBC

  • American Petroleum Institute reports 8.6 million-barrel decline in crude inventories.
  • Russia warns of fragile oil market but says it can raise output.
  • Hurricane Florence to hit U.S. East Coast on Friday.

Oil prices rose on Wednesday following a report of declines in U.S. crude inventories and as looming sanctions against Iran raised expectations of tightening supply, while top producer Russia warned of a fragile global crude market.

U.S. West Texas Intermediate (WTI) crude futures were at $69.84 per barrel at 0428 GMT, up 59 cents, or 0.9 percent, from their last settlement. WTI futures gained 2.5 percent in the previous session.

Brent crude futures climbed 28 cents, or 0.4 percent, to $79.34 a barrel. Brent has climbed for four straight sessions, gaining 2.2 percent the previous day.

“Oil prices jumped overnight as American Petroleum Institute inventory data showed a large drawdown in inventories,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

U.S. crude stocks fell by 8.6 million barrels in the week to Sept. 7 to 395.9 million barrels, the American Petroleum Institute (API), a private industry group, said on Tuesday.

Official weekly government data will be published by the U.S. Energy Information Administration (EIA) on Wednesday.

Regarding crude oil production, the EIA said on Tuesday it expected U.S. output to rise by 840,000 barrels per day (bpd) between 2018 and 2019 to 11.5 million bpd, lower than a rise of 1.02 million bpd to 11.7 million that was previously forecast.

Outside the United States, traders have been focusing on the impact of U.S. sanctions against Iran that will target oil exports from November.

Washington has put pressure on other governments to also cut imports, and many countries and companies are already falling in line and reducing purchases, triggering expectations of a tighter market.

“Fragile” market

Russian energy minister Alexander Novak on Wednesday warned of the impact of U.S. sanctions against Iran.

“This is huge uncertainty on the market – how the countries, which buy almost 2 million barrels per day of Iranian oil will act. The situation should be closely watched, the right decisions should be taken,” he said.

Novak said global oil markets were “fragile” due to geopolitical risk and supply disruptions.

“It is related to the fact that not all the countries have managed to restore their market and production,” he said, referring to outages and falling production in Mexico and Venezuela.

Should markets overheat and prices spike, however, Novak said Russia could boost its output.

“Russia has potential to raise production by 300,000 barrels (per day) mid-term, in addition to the level of October 2016,” he said.

That month Russia produced 11.247 million bpd, a post-Soviet Union record-high.

Oil markets were also eyeing Hurricane Florence offshore the United States amid surging demand for gasoline and diesel.

The storm is expected to make landfall on the U.S. East Coast on Friday, and has caused fuel shortages as millions of households and businesses have evacuated.

Front-month gasoline futures rose 0.5 percent on Wednesday, while heating oil futures increased 0.4 percent.

Oil climbs as US drilling stalls, Washington sanctions against Iran loom

CNBC

  • U.S. rig count has stagnated since May.
  • U.S. sanctions against Iran’s oil sector tighten market — FGE
  • Washington to meet with Saudi, Russia to discuss oil policy.
  • U.S.-China trade dispute drags on global markets

Oil prices rose on Monday as U.S. drilling for new production stalled and as the market eyed tighter conditions once Washington’s sanctions against Iran’s crude exports kick in from November.

U.S. West Texas Intermediate (WTI) crude futures were at $68.19 per barrel at 0344 GMT, up 44 cents, or 0.65 percent, from their last settlement.

Brent crude futures climbed 50 cents, or 0.65 percent, to $77.33 a barrel.

U.S. energy companies cut two oil rigs last week, bringing the total count to 860, energy services firm Baker Hughes said on Friday.

The U.S. rig count has stagnated since May, after staging a recovery since 2016, which followed a steep slump the previous year amid plummeting crude prices.

Outside the United States, new U.S. sanctions against Iran’s crude exports from November were helping push up prices.

Energy consultancy FGE said several major Iran customers like India, Japan and South Korea were already cutting back on Iran crude.

“Governments can talk tough. They can say they are going to stand up to Trump and/or push for waivers. But generally the companies we speak to … say they won’t risk it,” FGE said.

“U.S. financial penalties and the loss of shipping insurance scares everyone,” it said in a note to clients.

Tighter outlook?

With U.S. rig activity stalling and Iran sanctions looming, the oil market outlook is tightening.

“Investors have largely turned positive again … likely welcoming the return of backwardation,” said Edward Bell, commodity analyst at Emirates NBD bank.

Backwardation describes a market in which prices for immediate delivery are higher than those for later dispatch. It is considered a sign of tight conditions giving traders an incentive to sell oil immediately instead of storing it.

The Brent backwardation between October this year and mid-2019 is currently around $2.20 per barrel.

While Washington exerts pressure on other countries to fall into line and also cut imports from Iran, it is also urging other major producers to raise their output in order not to create too strong a price spike.

U.S. Energy Secretary Rick Perry will meet counterparts from Saudi Arabia and Russia on Monday and Thursday, respectively, as the Trump administration seeks the world’s biggest exporter and producer to keep output up.

One key question going forward is how demand develops amid the trade dispute between the United States and China, as well as general emerging market weakness.

Asian shares started the week in the red on Monday, faltering for the eighth straight day as U.S. President Donald Trump threatened yet more import tariffs on Chinese goods.

Consultancy FGE warned that “trade wars, and especially rising interest rates, can spell trouble for the emerging markets that drive (oil) demand growth.”

Despite this, FGE said the likelihood of significantly weaker oil prices was relatively low as the Organization of the Petroleum Exporting Countries (OPEC) would withhold output to prevent prices from plunging.

“We see $65 per barrel as a trigger for cuts,” FGE said.

Oil dips as trade tensions drag; Iran sanctions provide some support

CNBC

  • Oil prices dipped on Tuesday as rising trade tensions dented the outlook for fuel demand growth especially in Asia.
  • U.S. sanctions against Iran still pointed towards tighter supply.

An oil pump jack in Gonzales, Texas.

Getty Images
An oil pump jack in Gonzales, Texas.

Oil prices dipped on Tuesday as rising trade tensions dented the outlook for fuel demand growth especially in Asia, although U.S. sanctions against Iran still pointed towards tighter supply.

Front-month Brent crude oil futures were at $72.60 per barrel at 0338 GMT, down by 21 cents, or 0.3 percent from their last close.

U.S. West Texas Intermediate (WTI) crude futures were down 5 cents at $67.58 per barrel.

Signs of slowing economic growth and lower fuel demand increases, especially in Asia’s large emerging markets are weighing on the oil markets.

“Demand growth from Asia in general is being called into question. This due to the negative impact of trade wars, a stronger dollar and rising funding costs,” Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank, said in a note late last week.

Despite the gloomy outlook for trade and the potential slowdown in economic growth, oil markets are expected to remain relatively tight, particularly as U.S. sanctions on Iran have started.

“If markets really go into a funk, I’d expect oil to be part of that. But the complicating factor right now is Iran and the sanctions,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Because of the conflicting factors in oil markets, McKenna said “I’m staying out of oil at the moment.”

The United States has started implementing new sanctions against Iran, which from November will also target the country’s petroleum sector. Iran is the third-largest producer among the members of the Organization of the Petroleum Exporting Countries.

“With U.S. sanctions on Iran back in place … maintaining global supply might be very challenging,” ANZ bank said on Monday, although it added that “the U.S. is doing its bit to increase production, with data showing drilling activity is continuing to rise.”

U.S. energy companies last week added the most oil rigs since May, adding 10 rigs to bring the total count to 869, according to the Baker Hughes energy services firm.

That was the highest level of drilling activity since March 2015.

However, keeping with the bearish tone of the market, hedge funds and other money managers reduced their bullish positions in U.S. crude futures and options in the week ending on Aug. 7, data from the U.S. Commodity Futures Trading Commission showed on Friday.

The speculator group cut its combined net-long position in New York and London by 9,117 contract to 397,885 during the week, the lowest since June 19, the data showed.

Oil rises as US renews sanctions against Iran

CNBC

  • Oil prices rose on Tuesday as the United States reintroduced sanctions against major crude exporter Iran, tightening global markets.

A pump jack and pipes at an oil field near Bakersfield, California.

Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

Oil prices rose on Tuesday as the United States reintroduced sanctions against major crude exporter Iran, tightening global markets.

Spot Brent crude oil futures were at $74.08 per barrel at 0624 GMT, up 33 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were up 20 cents, or 0.3 percent, at $69.21 barrel.

U.S. sanctions against Iran, which shipped out almost 3 million barrels per day (bpd) of crude in July, officially came into effect at 12:01 a.m. U.S. Eastern time (0401 GMT) on Tuesday.

“The U.S. seems hell-bent on regime change in Iran,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Many countries, including U.S. allies in Europe as well as China and India oppose the sanctions, but the U.S. government said it wants as many countries as possible to stop buying Iranian oil.

“It is our policy to get as many countries to zero as quickly as possible. We are going to work with individual countries on a case-by-case basis, but our goal is to reduce the amount of revenue and hard currency going into Iran,” saida senior U.S. administration official on Monday.

Iran sanctions back: Impact on oil market

Iran sanctions back: Impact on oil market  

French bank Societe Generale said there was currently a “comfortable supply” in physical crude markets, but noted “Iran sanctions will take another 1 million bpd off the markets.”

This would leave markets with little spare capacity to deal with unforseen disruptions, it said.

Heat impacts oil

The main oil market price drivers of recent months have been output levels by top producers Russia, Saudi Arabia and the United States, renewed Iran sanctions, the U.S.-China trade dispute, and unplanned supply disruptions. Some analysts warned that a global heat wave could also now affect oil demand.

Much of the northern hemisphere has been gripped by extreme heat this summer, pushing up demand for industrial and residential cooling.

This mostly impacts demand for power fuels such as thermal coal and natural gas.

But U.S. bank JPMorgan said a warmer-than-usual fourth quarter could stem from a potential El Niño weather pattern that “can cause droughts, flooding and other natural disasters across the globe, including heatwaves in the U.S. that affect commodities”.

“Past instances of El Niño have resulted in sharp drops in U.S. residential and commercial heating oil demand and prices,” it said.