Crude oil falls 1% on fears for global economy

Output hits new low on Trump’s sanctions, supply pact

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SYDNEY/ LONDON
Crude oil prices fell on Friday as concerns over the outlook for global economic growth outweighed elevated tensions in the Middle East that could disrupt supply routes and send prices higher. US West Texas Intermediate (WTI) crude futures were down 1.1 percent at $56.72 per barrel by 0310 GMT. There was no settlement price on Thursday because of the Independence Day holiday in the United States. Front-month Brent crude futures were down 0.1 percent at $63.25 per barrel, after closing down 0.8 percent on Thursday.
Analysts said oil was under pressure because fears over future demand amid trade disputes threatening global economic growth. But losses were checked by commitment to cut production from the world’s largest exporters including members of the Organization of the Petroleum Exporting Countries (OPEC) and other producers such as Russia, a grouping known as OPEC+.
Global growth remains the main factor holding back crude prices,” said Alfonso Esparza, senior analyst at OANDA. The OPEC+ deal will keep prices from falling too hard, but there must be an end to trade protectionism to assure the demand for energy products recovers.
New orders for US factory goods fell for a second straight month in May, government data showed on Wednesday, stoking economic concerns. The US Energy Information Administration on Wednesday reported a weekly decline of 1.1 million barrels in crude stocks, much smaller than the 5-million-barrel draw reported by the American Petroleum Institute earlier in the week.
That suggests oil demand in the United States, the world’s biggest crude consumer, could be slowing amid signs of a weakening economy.
Countering the downward pressure, ongoing tensions in the Middle East also offered some support. British Royal Marines seized a giant Iranian oil tanker in Gibraltar on Thursday for trying to take oil to Syria in violation of EU sanctions, a dramatic step that drew Tehran’s fury and could escalate its confrontation with the West.
On the other hand, Brent oil ticked higher on Friday, supported by tensions over Iran and the decision by OPEC and its allies to extend a supply cut deal until next year, while US benchmark crude prices fell on weak economic indicators.—VoM
Brent was up 53 cents at $63.83 per barrel by 1330 GMT. US West Texas Intermediate (WTI) slipped 18 cents to $57.16. The US market was closed on Thursday for a holiday. Both benchmarks were set for their biggest weekly falls in five weeks. A trade war between the United States and China has dampened prospects of global economic growth and oil demand, but talks between the two nations resume next week in a bid to resolve the deadlock.
OPEC oil output sank to a new five-year low in June as a rise in Saudi supply did not offset losses in Iran and Venezuela due to U.S. sanctions and other outages elsewhere in the group, a survey found. The 14-member Organization of the Petroleum Exporting Countries pumped 29.60 million barrels per day (bpd) last month, the survey showed, down 170,000 bpd from May’s revised figure and the lowest OPEC total since 2014, the survey showed.
The Reuters survey suggests that even though Saudi Arabia is raising output following pressure from U.S. President Donald Trump to bring down prices, the kingdom is still voluntarily pumping less than an OPEC-led supply deal allows it to. OPEC renewed the supply pact at meetings this week.
Despite lower supplies, crude oil has fallen from a six-month high above $75 a barrel in April to below $63 on Friday, pressured by concern about slowing economic growth.
The decision of OPEC+ at the beginning of the week to extend its production cuts has done nothing to change this, Carsten Fritsch, analyst at Commerzbank, said of this week’s drop in prices.
A series of disappointing economic data from the United States, China and Europe has sparked new concerns about demand. OPEC, Russia and other non-members, known as OPEC+, agreed in December to reduce supply by 1.2 million bpd from Jan. 1 this year. OPEC’s share of the cut is 800,000 bpd, to be delivered by 11 members – all except Iran, Libya and Venezuela. The producers at meetings this week in Vienna extended the deal until March 2020.
In June, the 11 OPEC members bound by the agreement achieved 156% of pledged cuts, the survey found, more than in May, due to lower production in Iraq, Kuwait and Angola. All three of the exempt producers also pumped less oil. The United States reimposed sanctions on Iran in November after pulling out of a 2015 nuclear accord between Tehran and six world powers. Aiming to cut Iran’s sales to zero, Washington this month ended sanctions waivers for importers of Iranian oil.
Iran’s crude exports have declined to less than 400,000 bpd from more than 2.5 million bpd in April 2018. In Venezuela, supply fell slightly in June due to the impact of U.S. sanctions on state oil company PDVSA and a long-term decline in production, according to the survey. Among countries pumping more, Saudi Arabia boosted supply by 100,000 bpd to 9.8 million bpd from May’s revised figure, the survey found. This is still below its OPEC quota of 10.311 bpd.
Output also rose in Nigeria – which last month overproduced its target by the largest margin. June output was the lowest by OPEC since April 2014, excluding membership changes that have taken place since then, Reuters surveys show. The Reuters survey aims to track supply to the market and is based on shipping data provided by external sources, Refinitiv Eikon flows data and information provided by sources at oil companies, OPEC and consulting firms.

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