Tighter Supply Outlook Shores Up Crude Oil Prices to $75

Eileen GuzmanAug 04, 2018

The main worldwide benchmark, Brent crude, fell 92 cents while the main U.S. benchmark, WTI, dropped US$1.39. The new supply could help lift Petrobras' crude oil exports, which fell by 53.8% in June from a year ago to 696,000 bpd as the company increased its refinery output.

Iran said on Tuesday U.S. President Donald Trump was mistaken to expect Saudi Arabia and other oil producers to compensate for supply losses caused by U.S. sanctions on Iran, after OPEC production rose only modestly in July.

Saudi tankers altered course after the kingdom last week took the extraordinary measure of temporarily halting oil shipments via the Bab el-Mandeb Strait at the southern tip of the Red Sea.

Iran has renewed threats to block the Strait of Hormuz since the USA announced its plan to reinstate sanctions and cut shipments from Opec's third-largest producer to zero from about 2.5 million barrels a day now.

The latest declines came as a Reuters survey of analysts forecast another jump in OPEC's output for July and Russian Federation said its oil production would hit a 30-year high above 11 million bpd this year.

Hedge funds' net-long position in West Texas Intermediate crude fell 2.4 per cent to 392,147 futures and options during the week ended July 24, according to the US Commodity Futures Trading Commission.

Oil futures extended losses after remarks by Russia's energy minister, Alexander Novak, who said he "did not rule out...an increase in oil production in excess of 1 million barrels a day may be discussed".

Brent crude, the global benchmark, dropped 40 United States cents to $73.81 a barrel by 8.32am GMT, adding to a 1.8% loss in the previous session.

Week over week, USA crude oil exports fell by 1.37 million barrels a day last week and US production dipped by 100,000 barrels a day to 10.9 million.

Yemen's Houthi group said it was ready to halt attacks in the Red Sea to support peace efforts.

Geopolitical tensions have roiled the crude market, sending Brent prices higher since mid-July as global supplies tighten.

So far this year, WTI Crude prices have averaged $66.16 per barrel, and were down 0.47 percent at $69.80 at 07:58 a.m. EDT on Tuesday.

Oil extended losses below $69 a barrel after a surprise gain in American crude inventories spooked investors who are already contending with the rising trade dispute between the USA and China. On June 22-23, OPEC, Russia and other non-members agreed to return to 100 percent compliance with oil output cuts that began in January 2017, after months of underproduction in Venezuela and elsewhere pushed adherence above 160 percent.

Oil was steady near $70/bbl as supply risks from Saudi Arabia to the United Kingdom threaten to strain global markets.

The U.S. imposed 25 percent tariffs on $34 billion of Chinese products in early July, and the review period on another $16 billion of imports ends Wednesday.

According to the survey, which is based on external sources and shipping data, OPEC produced 32.64 million barrels per day (Mmbpd) of crude last month.

Last month, China and the United States slapped tariffs on $34 billion of each other's goods, and another round of US tariffs on $16 billion in Chinese goods is expected in August.

The U.S. economy grew at its fastest pace in almost four years in the second quarter, but trade tensions remain high between Washington and Beijing despite an easing between the United States and the EU.

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