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Oil struggles near $68 as inventory gain overshadows Iran fears

May 03 2018 10:26
Sharon Cho, Bloomberg

Singapore - Oil’s recovery buoyed by potential supply risks was capped by expanding U.S. crude inventories while American President Donald Trump nears a decision on whether to reimpose sanctions on Iran.

Futures in New York were little changed after rising 1% on Wednesday, the biggest gain in two weeks. US data showed that stockpiles last week gained by the most since January, exceeding estimates.

Meanwhile, Trump has set a May 12 deadline to decide if he should stick with or pull out of a deal between Iran and world powers that eased restrictions on the producer’s crude exports in exchange for curbs on its nuclear programme.

Crude futures in New York and London have risen more than 10% over the past two months on escalating geopolitical risks in the Middle East and as investors await the fate of the Iran nuclear accord.

At the same time, global producers led by the Organisation of Petroleum Exporting Countries and Russia seem determined to keep cutting production even after achieving their main target following 16 months of output curbs to clear a global glut.

“The market seems to be confused, having a hard time trying to decide on a direction,” said Will Yun, a Seoul-based commodities analyst at Hyundai Futures. “For now, the concerns over supplies are weighing on the market but eyes will be closely kept on Iran and the US in the longer term.”

West Texas Intermediate crude for June delivery was 3 cents lower at $67.90 on the New York Mercantile Exchange at 2:41 pm in Singapore. The contract increased 68c to close at $67.93 on Wednesday. Total volume traded was about 38% below the 100-day average.

Brent crude for July settlement fell 11c to $73.25 a barrel on the London-based ICE Futures Europe exchange. Prices rose 0.3% to end the session at $73.36 on Wednesday. The global benchmark crude was at a $5.51 premium to July WTI.

US data

Yuan-denominated futures for September delivery were up 0.8% at 447.1 yuan per barrel in afternoon trading on the Shanghai International Energy Exchange. The contract dropped 0.2% to close at 443.5 yuan on Wednesday.

The Energy Information Administration reported that US crude inventories rose 6.22 million barrels last week, compared with a 1.23-million-barrel gain estimated in a Bloomberg survey. Stockpiles in the nation’s oil storage hub Cushing, Oklahoma, increased 416 000 barrels, and those in the logistically-isolated West Coast led with a 4.88-million-barrel build, the most since 1999.

While Trump says no final decision has been made on the Iran accord, the administration has in recent days signaled it’s more likely to leave the agreement. Secretary of State Mike Pompeo said on Wednesday that the US is considering next steps for the “flawed” deal.

With Trump in the past calling the pact “insane” and the “worst deal ever,” a potential pull-out would lead to oil’s surge as it may disrupt sales by OPEC’s third-largest producer, according to analysts at Citigroup and Standard Chartered.

Other oil-market news:

The trading unit of one of the world’s biggest refiners is displeased with Saudi Arabia’s oil pricing for a second straight month, which may benefit crude sales from the US and Russia.

• International Monetary Fund’s latest report on the Saudi economy shows why the government would like prices to keep climbing - the IMF bolstered its estimate for the oil price the kingdom needs to balance the national budget this year to $88 a barrel, 26% more than an assessment made in October.

• Gasoline futures traded 0.3% lower in New York on Thursday, heading for the lowest close since April 18.

• For shale producers, the most pressing task this earnings season is to assure markets their barrels won’t get stuck in Midland, Texas.

• Major producers including Anadarko Petroleum and Noble Energy are highlighting their ability to move oil and natural gas out of the Permian basin in West Texas.

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commodities  |  markets  |  oil
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