Oil holds gain near $69 amid declining U.S. crude inventories

Kenny Grant
August 9, 2018

West Texas Intermediate crude jumped 0.9% to $69.50 per barrel at 10:30 a.m. ET.

Oil prices rose on Monday after Saudi crude production registered a surprising dip in July and as American shale drilling appeared to plateau.

We are experiencing the impact of lower production this week in the markets. The average North Sea Brent mix at the Intercontinental Exchange (ICE) in London reached US$74.95 per barrel, down by US$0.99 only compared with previous month's trading. Earlier today, crude oil sold off after it was announced that Saudi Arabia has resumed oil shipments through the Red Sea shipping line of Bab al-Mandeb over the weekend.

"However, the central geopolitical risk stems from the Iranian threat of closure of the Strait of Hormuz - a critical conduit for global oil supplies with 17 per cent of global crude oil and products travelling through this narrow channel on a daily basis", said Khoman. "We had been regularly taking spot cargoes but are now also looking at tender-term deals where monthly cargoes can be booked through a tender purchase", he said. The trading price ranged between US$76.11 per barrel, and US$69.71 per barrel.

It also is not clear if the State Department could allow sanction waivers, which were used in the Obama era to wean the world off of Iranian oil and avoid supply shocks.

Oil prices fell on Wednesday, following Chinese import data that highlighted an ongoing slowdown in demand from previously avid buyers, although evidence of falling USA crude inventories and the introduction of Iranian sanctions helped stem losses. The crude oil imports maintained the same levels during the last two weeks.

"If we get below $66 here, you're arguably violating the long-term uptrend channel", he said, referring to USA crude's upward trajectory this year. U.S.net imports increased by 1.35 million barrels per day during that week.

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In other news, USA drillers cut two oil rigs in the week to August 3, bringing the total count down to 859, General Electric's Baker Hughes energy services firm said on Friday.

Beyond the sanctions, the oil market was focusing on the U.S. market, where the American Petroleum Institute said on Tuesday that crude inventories fell by 6 million barrels in the week to 3 August to 407.2 million. The impact on the Iranian economy is expected to be harsh and the restrictions on oil and gas exports are expected to be harsher still.

"You can not order 2 million barrels like ordering a coffee somewhere", Beat Wittmann, a partner at financial consultancy Porta Advisors, told CNBC recently.

In addition, U.S. crude futures' discount to Brent remains historically wide at $6.27 a barrel, encouraging USA oil exports.

The United States, however, while continuously tightening financial sanctions and designating a growing number of officials and persons, has so far refrained from slapping Venezuelan oil with restrictions.

Analysts attributed the decline in drilling rigs to the larger price differential between WTI Midland and WTI Cushing due to pipeline bottlenecks.

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