Oil traded below $70 a barrel as investors assessed the outlook for an oil supply shortage with Iran sanctions set to kick in against whether Opec can fill in the gap by raising output.
Futures in New York dropped as much as 0.8 per cent after two days of gains. Traders are bracing for a meeting on production between the Opec and its allies in the Algerian capital on September 23. Speculation is swirling over whether a potential supply gap can be filled by the group at a time when American crude inventories are falling to the lowest since 2015, and output losses are witnessed in Iran.
Oil has climbed over the past month, with Brent in London briefly breaking past $80 a barrel, as the impending US sanctions on Iran start removing barrels from markets, and shrinking American inventories and slowing production growth raise fears over a global supply crunch. Still, Opec warned that escalating trade tensions and a crisis in emerging markets could hurt oil demand, keeping investors guessing on what path the group may take.
“There remains a lot of noise in this week’s markets, but the confluence of bullish near-term signals such as Iran sanctions, sinking US crude inventories and Mideast tensions should keep oil prices supported for the remainder of the week,” said Stephen Innes, head of trading for Asia Pacific at Oanda. “But traders are now pivoting to the Opec and non-members’ meeting next week in Algeria.”
West Texas Intermediate for October delivery traded at $69.91 a barrel on the New York Mercantile Exchange, down 46 cents, at 11:53am in Singapore. The contract climbed $1.12 to $70.37 on Wednesday. Total volume traded was about 22 per cent below the 100-day average.
Brent for November settlement lost 43 cents to $79.31 a barrel on the ICE Futures Europe exchange after rising above $80 for the first time since May 22 on Wednesday. The global benchmark traded at a $9.63 premium to WTI for the same month.
Opec and its allies will meet in Algiers this month to assess global oil markets after having agreed to increase output at their last meeting in June. Russian Energy Minister Alexander Novak said the nation has the capacity to set a new oil-production record, but it will discuss supplies with Opec as it’s in everyone’s interest to keep the market balanced.
Still, fears over a supply crunch remained, with Iran’s output slumping by 150,000 barrels last month, according to Opec’s monthly market report. The country is the third-biggest producer among Opec members.
In the US, crude inventories dropped by 5.3 million barrels to 396.2 million barrels last week, the lowest since February 2015, according to the Energy Information Administration data. Stockpiles in Cushing, Oklahoma, declined for the first time in five weeks.
Meanwhile, Hurricane Florence is set to park above the Carolinas coastline, threatening fuel markets in the East Coast. Duke Energy warned of power loss in North and South Carolina, with the hurricane posing a threat to some pipelines running through the region.