Oil falls as market grapples with production increases

Gas flares from an oil production platform at the Soroush oil fields in the Persian Gulf, south of the capital Teheran, July 25, 2005. — Reuters pic
Gas flares from an platform at the Soroush oil fields in the Persian Gulf, south of the capital Teheran, July 25, 2005. — Reuters pic

NEW YORK, July 2 — Oil prices fell today, reversing course from last week as supplies from Saudi Arabia and Russia rose while economic growth stumbled in Asia amid an escalating trade dispute with the United States.

Global benchmark crude <LCOc1> fell US$1.16 to US$78.07 (RM316.07) a barrel by 10:33am EDT (1433 GMT), after earlier touching a session low of US$77.89. US light crude <CLc1> dropped 28 cents to US$73.87 a barrel.

The premium for US crude for the front month compared with the second month <CLc1-CLc2> widened to as much as US$1.98 a barrel, the most since Aug 20, 2014.The move indicates that the market expects supply shortages to be more severe in the short-term.

The move came after information provider Genscape said at Cushing, Oklahoma had fallen in the week, traders said. Genscape said stockpiles at the Cushing delivery hub were down 3.2 million barrels in the week June 22, but rose slightly in the four following days to June 26.

Oil prices rose strongly last week, with the US crude contract hitting its highest in 3-1/2 years at US$74.46.

But a flurry of announcements over the weekend unsettled oil markets.

“There seems to be great uncertainty about how much oil will be added to the supply side of the market,” said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut, referring to how much Saudi Arabia’s spare capacity will be able to offset shortages around the world. “How this really is going to play out seems to be up in the air.”

US President Donald Trump tweeted on Saturday that Saudi Arabia’s King Salman bin Abdulaziz Al Saud had agreed to pump more oil, “maybe up to 2,000,000 barrels”. The White House later walked back the comments.

Saudi Arabia’s output is up by 700,000 barrels per day (bpd) from May, a Reuters survey showed, and close to its 10.72 million bpd record from November 2016.

Russian output rose to 11.06 million bpd in June from 10.97 million bpd in May, the Energy Ministry said today.

US production <C-OUT-T-EIA> has soared 30 per cent in the past two years, to 10.9 million bpd, meaning the world’s three biggest oil producers now churn out almost 11 million bpd each, meeting a third of global oil demand.

Also weighing on oil demand are trade disputes between the United States and other major including , the European Union, India and Canada.

China, Japan and South Korea all reported slowdowns in export orders in June amid escalating trade disputes with the United States.

“Recurring salvos in the trade war and falling asset prices raise the question of how much tariffs could damage the global economy,” US bank JPMorgan said.

The bank said a “medium-intensity (trade) conflict would likely reduce growth by at least 0.5 per cent, “before accounting for tighter financial conditions and sentiment shocks”.

Despite the relief from Saudi Arabia and Russia, oil markets remain tense because of unplanned outages from Canada to Venezuela and Libya.

Looming US sanctions against Iran further contribute to expected tightness.

Trump threatened in an interview that aired on Sunday to put sanctions on European companies that do business with Iran.

“The Trump administration’s plan for Iran sanctions is now abundantly clear. They seek to push Iranian exports of crude, condensate, and oil products to zero,” energy consultancy FGE said in a note. — Reuters

Source: The Malay Mail Online

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