Oil stages biggest rally amid global supply risks

Andrew Cummings
August 2, 2018

Crude palm oil prices fell 0.54 per cent to Rs 602.50 per 10 kg in futures trade today as speculators booked profits at higher levels amid fall in demand at the spot market. It has rebounded to above $70 a barrel since April as the Opec cartel, which pumps a third of the world's crude, cut supplies to bring the market back into balance.

Signs that a supply disruption in the Bab al-Mandeb Strait in the Red Sea could be resolved weighed on prices throughout the trading session, said John Kilduff, partner at Again Capital Management in NY. The more-actively traded October contract was little changed at $75.51.

Oil's Bull Trend Goldman Sachs Group Inc. said while United States policies may weigh on crude prices in the near term, prices are poised to re-test $80 a barrel later this year.

West Texas Intermediate crude for September delivery traded at US$69.87 a barrel on the New York Mercantile Exchange, down 26 cents, at 8:19am in London.

Brent crude, the global benchmark, was down 1.3% to $73.22 a barrel on London's Intercontinental Exchange.

A Reuters poll forecast stocks fell 2.8 million barrels.

"Oil prices could struggle this week", said Stephen Innes, head of trading APAC at OANDA Brokerage. OPEC production reached a 2018 high in July, a Reuters survey found on Monday.

Crude is poised for the biggest monthly loss in a year as simmering trade tensions between the United States and China pushed prices lower.

Energy information company Genscape, however, said that inventories at Cushing rose almost 200,000 barrels, or nearly 1%, from Tuesday to Friday last week, according to traders.

A volley of sabre-rattling tweets had raised tensions in oil markets, which are already concerned about supplies as U.S. sanctions coming back into force in November aim to choke off Iranian oil exports.

"It is the impact of the USA sanctions on Iran that will decide the next $15 a barrel", PVM Oil Associates Tamas Varga said in a note.

The initial deal, under which OPEC and non-OPEC producers are cutting supply by about 1.8 million barrels per day, had expired in March 2018. Secretary of State Michael Pompeo laid out terms for a meeting between the USA and Iranian leaders.

The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries agreed to raise supply in a meeting last month to meet rising global demand, but the group did not specify a clear target for the output increase. "Even though trade war worries were eased between the US and European Union this week, they still loom large with China, weighing on prices". Saudi Arabia had suspended oil shipments through the strait last week after attacks on tankers.

Prices are also falling in the physical market, where top oil exporter Saudi Arabia is expected to cut prices for all crude grades going to Asia in August, according to several market participants on Wednesday.

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