Weekly US oil report shows an increase in crude supplies

Brent Crude Oil

Brent Crude Oil

Oil futures tumbled more than 2% on Wednesday as an unexpected build in US crude stockpiles compounded investor worries that a prolonged trade fight between Washington and Beijing could dent crude demand.

Brent crude futures, the global benchmark, fell to a session low of US$68.35 per barrel, trading down US$2.50 at US$68.49 by 1343 GMT.

U.S. West Texas Intermediate (WTI) crude futures were down by US$3.04 cents at US$58.39 per barrel, after falling 2.5 per cent the previous day.

In the broader picture, and supporting prices, appear rising US-Iran tensions, turmoil in Libya, the so-called "Saudi put" and the ongoing OPEC+ deal to cut oil output.

"Buying pressures are sandwiched between mounting geopolitical disruption risks in the Middle East and jitters over the fallout from the intensifying US-China trade dispute", PVM's Stephen Brennock said in a note.

The oil market has built in risk premium related to US sanctions on Iran, and that risk is now seen decreasing, he said. "Even a modest bout of profit-taking could quickly cascade into a selling frenzy".

Also bearish is the ongoing trade war between the US and China, which is clouding economic growth, and with that, oil demand predictions as well.

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"Macro economic data has rapidly deteriorated, and this is reflected in weaker oil demand". The Organization for Economic Co-Operation and Development (OECD) on Tuesday revised down its global growth forecast for the year.

The oil and stock markets were hard hit on Thursday by the increased tension in the U.S.

Bank of America Merrill Lynch noted that crude production by OPEC and its allies fell by 2.3 million barrels per day during the period between November 2018 and April 2019 as a result of the cuts.

USA crude oil production C-OUT-T-EIA rose by 100,000 barrels per day (bpd), to 12.2 million bpd, putting output near its record of 12.3 million bpd reached late last month. Drone attacks on Saudi Arabia earlier this week called attention to ongoing Middle East turmoil that may prevent oil prices from pulling back to February lows, Kilduff said.

United States bank Morgan Stanley said it expected Brent prices to trade in a $75-80 per barrel range in the second half of this year, pushed up by tight supply and demand fundamentals.

The U.S. manufacturing growth figure for May, which showed the weakest pace of growth in almost a decade, further dampened sentiment in the markets, and the Dow tumbled by nearly 400 points.

Qatar Petroleum has sold al-Shaheen July delivery crude at the highest average premium since 2013 on robust demand for medium-heavy grades in Asia, trade sources said.

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