Oil prices react moderately as slowing global economy softens rally

Brent fell to its lowest in a week on Monday

The US-China trade war kept Brent in a tight band between $60 and $70 per barrel over the last two months. Getty

Oil made moderate gains even as it lurks in a stagnant market, with slowing global economic fundamentals weighing down prices.

Brent gained 0.41 per cent and trading at $64.37 per barrel at 1.46pm UAE time on Tuesday after it fell to its lowest in a week the day before.

The benchmark for light, sweet crude fell 0.2 per cent on Monday as supply fundamentals such as US midstream capacity picking up pace as well as low momentum of the global economy reversed the crude rally following tensions in the Middle East.

The stagnancy of prices comes amid a cooling off of tensions in the region, which had escalated following Iran's downing of a US drone, which it claimed was operating over its airspace. The US prepared for and eventually cancelled air strikes against Tehran.

However, tensions in the region, particularly along the Strait of Hormuz, which transports a third of the world's seaborne oil, remain simmering following the capture of an Iranian tanker by the British Royal Marines off the coast of Gibraltar.

Britain has said the Panamanian-flagged Grace 1 tanker, laden with around two million barrels of crude was destined for Syria and in violation of EU sanctions.

Tehran denied the allegations and threatened retaliation saying it would target British vessels.

Iranian foreign minister Javad Zarif tweeted on Monday the EU had no enforceable sanctions against Iran, which has been restricted from selling its crude in the oil markets because of a US embargo on the trade of its oil.

"Iran is neither a member of the EU nor subject to any European oil embargo. Last I checked, EU was against extraterritoriality. UK's unlawful seizure of a tanker with Iranian oil on behalf of #B Team is piracy, pure and simple," he tweeted. Team #B referred to US President Donald Trump's administration.

There have recently been incidents of attacks on tankers in the Arabian Gulf. Two vessels carrying crude from Saudi Arabia and the UAE were damaged last month. The US blamed Iran, which denied any involvement.

In May, four tankers off the coast of Fujairah were attacked in what authorities said appeared to be “sabotage”.

Oil prices reacted bullishly to the regional tensions around mid-June but have remained muted following the recent Opec+ deal to extend production cuts until March next year.

The alliance of producers led by Saudi Arabia and Russia have held back 1.2 million barrels per day since the beginning of the year.

Analysts expect prices to react moderately for the rest of the year.