Published: Mon, August 06, 2018
Money | By Ethel Goodwin

Oil prices rally on expectation that inventories will drop

Oil prices rally on expectation that inventories will drop

Saudi Arabia, Russia, Kuwait and the United Arab Emirates (UAE) have increased production to help compensate for an anticipated shortfall in Iranian crude supplies when planned U.S. sanctions take effect later this year.

According to the Weekly Petroleum Status Report, U.S. commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve (SPR), increased by 3.8 million barrels last week.

The West Texas Intermediate (WTI) for September delivery lost 1.10 US dollars to settle at 67.66 dollars a barrel on the New York Mercantile Exchange, while Brent crude for October delivery erased 1.82 dollars to close at 72.39 dollars a barrel on the London ICE Futures Exchange.

Analysts said widening of positions by participants amid pick up in spot demand against tight stocks position on restricted supplies from overseas markets mainly kept crude palm oil prices higher at futures trade.

Overall US crude oil inventories actually rose by 3.8-million barrels last week to 408.74-million barrels, the EIA data showed. USA crude rose $1.22 to $68.88 a barrel.

Tensions between the USA and Iran are also supporting the market, Barratt said.

Saudi Arabia's production increase shows it's delivering on promises to prevent prices from damaging the global economy after Brent crude reached a three-year high above $80 a barrel earlier this summer.

OPEC's July output climbed as Saudi Arabia pumped near-record volumes, while Russian Federation boosted production to unprecedented levels since it joined the cartel in a coordinated cut in January 2017.

It produced about 11.21 million barrels per day, an increase of 140,000 from a month earlier, according to Bloomberg calculations based on the ministry's data.

There were also factors holding oil markets in check. "Yesterday you had a strong rebound supported by Cushing but there's not a lot else that is driving prices higher so we are seeing a bit of a correction", Olivier Jakob at Petromatrix consultancy said.

Brent prices fell more than 6 percent in June and USA crude slumped about 7 percent, the biggest monthly declines for both benchmarks since July 2016.

U.S. President Donald Trump's decision to pull out of an worldwide nuclear deal and reimpose sanctions on Iran has angered Tehran.

Oil last month posted the worst loss in two years on concern a trade war between the United States and China could curb economic growth and limit energy demand.

“There are a lot of escalation points that could occur very quickly and that worries me, ” Barratt said.

"It is nearly certain that China will impose additional duties on oil and refined products imported from the US if the Trump administration implements additional tariffs on the next tranche of Chinese goods".

The market's expectation was 2.8 million barrels of crude oil draw.

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