Oil prices hit a six-week high on Thursday as oil rigs in the Gulf of Mexico were evacuated ahead of a storm, while an incident with a British tanker in the Middle East highlighted tensions in the region. Brent crude futures reversed early losses and were up 40 cents at $67.41 a barrel by 0852 GMT. Earlier in the session they hit their highest since May 30 at $67.65, after ending Wednesday up 4.4 percent.
US West Texas Intermediate crude futures were up 33 cents, at $60.76 a barrel, having earlier touched their highest since May 23 at $60.94. They gained 4.5 percent in the previous session. A day after Iran warned Britain would face consequences over the seizure of an Iranian oil tanker, three Iranian vessels tried to block the passage of a British ship run by BP through the Strait of Hormuz, the British government said. They withdrew after warnings from a British warship.
What happened was partially expected. We pointed out last week that Iran was likely to do something of the sort, Petromatrix oil analyst Olivier Jakob said. They might have created a little bit of disturbance, but nothing came out of it. For now, we are in the process of intimidation and psychological warfare … To have a strong price reaction you need something to really happen.
Oil prices were also supported by a decline in US inventories. US crude stocks fell 9.5 million barrels in the week to July 5, the Energy Information Administration (EIA) said, more than the 3.1 million-barrel draw analysts had expected as refineries ramped up output.
Meanwhile, OPEC on Thursday forecast world demand for its crude will decline next year as rivals pump more, pointing to the return of a surplus despite an OPEC-led pact to restrain supplies. Giving its first 2020 forecasts in a monthly report, the Organization of the Petroleum Exporting Countries said the world would need 29.27 million barrels per day (bpd) of crude from its 14 members next year, down 1.34 million bpd from this year.
The drop in demand for OPEC crude highlights the sustained boost that OPEC’s policy to support prices by supply cuts is giving to US shale and other rival supply. This potentially gives US President Donald Trump more room to keep up sanctions on OPEC members Iran and Venezuela. US tight crude production is anticipated to continue to grow as new pipelines will allow more Permian crude to flow to the US Gulf Coast export hub, OPEC said, using another term for shale oil.
OPEC in the report also forecast that world oil demand would rise at the same pace as this year and that the world economy would expand at this year’s pace, despite slower growth in the United States and China. The 2020 forecast assumes that no further downside risks materialize, particularly that trade-related issues do not escalate further, OPEC said of the economic outlook.
Brexit poses an additional risk, as does a continuation in the current slowdown in manufacturing activity.
OPEC and its allies last week renewed a supply-cutting pact until March 2020, citing the need to avoid a build-up of inventories that could hit prices. OPEC also said its oil output in June fell by 68,000 bpd to 29.83 million bpd, above the 2020 demand forecast. This suggests there will be a 2020 supply surplus of over 500,000 bpd if OPEC keeps pumping at June’s rate and other things remain equal.