Oil edges lower as Cushing build adds to demand fears

Virginia Carson
August 15, 2018

"With U.S. sanctions on Iran back in place ... all eyes have been on the impact on crude oil exports from that country", ANZ bank said on Monday. Oil prices spiked in May when Trump announced that he was imposing sanctions on Iran and leaving the Joint Comprehensive Plan of Action (JCPOA).

LONDON-Oil prices fell Wednesday after data showed a rise in USA crude stockpiles, following days of volatile trading. OPEC's MOMR published a report yesterday that painted a picture of diminishing oil demand growth rates.

Yet their shipped imports in July were about half a million barrels per day (bpd) below their Jaunary-June average of 12.4 million bpd, shipping data shows.

"Traders are just pulling the plug", said Ashley Petersen, lead oil analyst at Stratas Advisors in NY.

However, a revival from lower levels can not be ruled out in the next quarter as USA sanctions on Iranian oil exports are due to take effect in November that may cut two-third of its exports and in turn tighten global supply.

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The effects of the economic slowdown will take time to manifest, but analysts say investors are already becoming cautious. Meanwhile, U.S. output, which had surged to a record last month, has slowed in recent weeks.

World trade volume growth peaked in January at nearly 5.7 per cent year-on-year, but fell to less than 3 per cent by May, according to the Netherlands Bureau for Economic Policy Analysis.

A move of that severity is not unheard of in commodity markets.

On the bearish side, the escalating trade war could "lead to slower economic growth, and in turn lower oil demand".

Oil traders will stay focused on a plethora of bearish factors now weighing on the market in the week ahead, after United States (U.S.) crude prices suffered their sixth straight weekly loss last week - their worst losing streak since August 2015.

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"The direct impact on global demand for oil is negligible", Fritsch said.

While the US oil industry is experiencing a boom with the expansion of hydraulic fracturing techniques, energy drillers and fracking-related ETFs may slow down ahead with rising costs eating away at profits.

The forecast came as rival producers, such as the United States pump more and top oil exporter Saudi Arabia, eager to avoid a return of oversupply, had cut production. Saudi Arabia's July production fell to 10.387 million barrels a day, a month-over-month decrease of about 53,000.

Although that's slightly above June, it's below the figures for April and May.

More specifically, analysts are converging on a range of between 700,000 bpd to 1 mb/d of disrupted Iranian supply, give or take.

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Despite the gloomy outlook for trade and the potential slowdown in economic growth, oil markets are expected to remain relatively tight, particularly as United States sanctions on Iran have started.

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