Oil prices fall amid surprise growth in USA crude stocks

Devin Lawrence
September 22, 2018

A pump jack operates in the Permian Basin oil production area near Wink, Texas U.S. August 22, 2018.

USA oil futures rose more than $1 a barrel on Wednesday, bolstered by a fifth weekly crude inventory drawdown and strong domestic gasoline demand, amid ongoing supply concerns over US sanctions on Iran that come into force in November.

Brent futures LCOc1 also rose but the gains were more muted, as the global benchmark ended 37 cents, or 0.5 percent, higher at $79.40 a barrel.

USA sanctions affecting Iran's petroleum sector will come into force from November 4 though many buyers have already cut their purchases, raising questions about how the market will make up the lost supply. The focus on oil supply has been reflected in the options market this week, where investors have scooped up large amounts of bullish buy, or call, options.

The OPEC Chief did not specify how crude producers would compensate for declining exports from Iran, with new United States sanctions due to hit the Islamic republic's oil industry on November the 4th. In the first two weeks of September, it sold an average of 1.6 million barrels a day, down from 2.5 million barrels a day in April, according to Bloomberg tanker tracking.

Official inventory data from the U.S. Energy Information Administration will be released later on Wednesday.

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There are signs, however, that Saudi Arabian exports did not increase in July. Energy ministers of Saudi Arabia, a USA ally, and Russian Federation said in May they were prepared to ease output cuts to calm consumer worries about supply.

With Iran's crude sales falling due to the USA sanctions and countries such as Venezuela struggling to avoid outright economic collapse, it was perhaps inevitable that Mohammad Barkindo, secretary general for the Organization of the Petroleum Exporting Countries (OPEC), would tell Reuters that his cartel will keep working with other oil producers to manage global supplies in the face of demand for crude facing "headwinds".

Russian Energy Minister Alexander Novak said an oil price between $70 and $80 was temporary and sanctions-driven, adding that the long-term price would stand around $50/Bbl.

Oil futures also drew support from geopolitical risk on Tuesday.

The tariffs are likely to limit economic activity in both China and the U.S. and that should lower oil demand growth as less fuel is consumed to move goods for trade.

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