Crude Falls as Markets Focus on U.S. Inventory Builds and Ignore Iranian Threats

by Ship & Bunker News Team
Thursday July 5, 2018

For a community of traders and analysts who have fomented over the past month about the prospect of global supply shortages, all it took on Thursday was a disclosure of a surprise build of U.S. stockpiles for them to cause oil prices to drop 1.6 percent - completely ignoring, apparently, threats from Iran of cutting off regional exports amid U.S. sanctions pressure.

West Texas Intermediate ended Thursday's session down $1.20, or 1.6 percent, at $72.94, while Brent  fell 79 cents to $77.45 per barrel.

Abhishek Kumar, senior energy analyst at Interfax Energy, noted that "An unexpected build in the U.S. commercial crude inventory has prompted profit-taking," referring to the Energy Information Administration disclosing that crude inventories rose by 1.2 million barrels in the week to June 29,  compared with analysts' expectations for a decrease of 3.5 million barrels.

Far less impactful to traders was news that the leading commander of Iran's Revolutionary Guard would be prepared to enact any presidential orders to block exports of crude to the Persian Gulf.

Major-General Qassem Soleimani told local news agencies, "I kiss (president Hassan Rouhani's) hand for expressing such wise and timely comments, and I am at your service to implement any policy that serves the Islamic Republic."

He was referring to Rouhani earlier threatening to retaliate if U.S. president Donald Trump succeeds in halting crude sales from the Gulf under the sanctions he reimposed on the Islamic republic.

But even though Iran took a back seat on Thursday to concern over U.S. inventory builds, the sanctions against the country will surely affect crude trading in the weeks to come, said Stephen Brennock, oil analyst at PVM Oil Associates, in a research note.

He pointed out with regards to the possibility of Iran closing the Strait of Hormuz, a major oil shipping route for Persian Gulf nations to the Arabian Sea, "Around 17 million barrels per day [bpd] or 35 percent of all seaborne oil exports pass through the strategic waterway and, needless to say, such a move would propel oil prices well into triple figures."

He added, "Iran's leadership is clearly adamant that the new situation created by the U.S. withdrawal from the nuclear pact will not go without consequences; this, in turn, should go a long way to ensuring that the geopolitical premium remains alive and well."

Meanwhile, Saudi Arabia's continuing bid to offset any shortages from Iran or other countries was given brief mention in media circles on Thursday, when sources from the Organization of the Petroleum Exporting Countries (OPEC) disclosed that the kingdom had pumped 10.488 million bpd of crude oil last month, an increase of 458,000 bpd from the level it said it produced in May.

The Saudis will be a key deciding factor in whether crude prices will rise to the triple digits as Brennock and other analysts believe or stay relatively put: Saudi King Salman bin Abdulaziz Al Saud has assured Trump the kingdom can raise oil production to 2 million bpd if required, an amount many experts think is impossible to achieve in a short time frame.