Oil supported as new hedges placed, but higher supplies weigh

06 August, 2018, 11:36 | Author: Kevin Carter
  • Oil Ticks Up to End a Volatile Week

The U.S. Energy Information Administration (EIA) on Wednesday reported a large build in crude oil inventories and a production decline in the week ending July 27.

"Venezuela's ticking time bomb together with the return of Iran's oil industry to the sanctions era has all the makings for a major supply shock", Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note published Friday.

Additionally, Russia appears to have increased its production in line with OPEC's decision in late June to increase its output, with its crude and condensate production increasing 1.4% last month to 11.215 million b/d, the energy ministry said yesterday.

Brent crude, the global benchmark, was up 0.2% at $73.61 a barrel on London's Intercontinental Exchange. USA crude futures slumped last month by the most in two years, and traded just below $68 a barrel on Wednesday on the New York Mercantile Exchange.

USA nonfarm payrolls rose in July, but the US trade deficit recorded its biggest increase in more than 1-1/2 years in June as the boost to exports from soybean shipments faded and higher oil prices lifted the import bill.

Meanwhile, Opec's July output climbed as Saudi Arabia pumped near-record volumes and Russian Federation boosted production to levels not seen since it joined the cartel in a coordinated cut two years ago.

Crude oil production from the Organisation of Petroleum Exporting Countries increased last month as Saudi Arabia pumped near-record volumes to make good on a pledge to consumers that demand would be met.

More news: Scattered protests in Iran as USA sanctions loom

USA crude inventories rose 3.8 million barrels last week, according to data from the Energy Information Administration.

On Monday, August 6, the first set of USA sanctions on Iran will snap back, so we will be probably looking at tougher actions over August and September, Croft said. But a complete halt to Iranian supplies looks unlikely with Bloomberg reporting on Friday that China, Iran's biggest customer, has rejected a U.S. request to cut imports from the oil cartel Opec member. China's Unipec, the trading arm of Sinopec, has suspended crude oil imports from the United States due to the growing trade spat between Washington and Beijing, three sources familiar with the situation said on Friday.

Hedge funds and other money managers cut their bullish USA crude bets in the latest week, as oil prices were range-bound, pinned between concerns about tight supply due to sanctions and fears that trade disputes could curb demand.

The kingdom has been under acute pressure from President Donald Trump to open the taps as he chokes off exports from Saudi's political rival, Iran.

"There are a lot of escalation points that could occur very quickly and that worries me", Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney, said. After Trump called for a 15 percent increase in tariffs on Chinese goods earlier this week, Beijing on Friday announced it was targeting $60 billion worth of USA goods in response.

That compares with a forecast for a 3-million-barrel decline in a Bloomberg survey of analysts.

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