Crude Rises Despite More Talk - and Evidence - of Market Stability

A drop in U.S. stockpiles was the trigger for Thursday's gains. File Image / Pixabay

Although news that U.S. crude stockpiles fell in the latest week inspired a rise in prices on Thursday, ongoing hostilities between the U.S. and Iran was also said to play a role in the gains - although to what extent is unclear.

This was despite Saudi Arabia, Kuwait, and the United Arab Emirates increasing production to help offset a shortfall in Iranian oil supplies once U.S. sanctions come into force later this year, as well as Russia's output reportedly increasing by 150,000 barrels per day (bpd) in July - circumstances that should theoretically quash traders' fears of a market tightening.

West Texas Intermediate rose $1.35 to settle at $68.93 per barrel, while Brent climbed $1.23 to $73.62 per barrel, on the strength of a report from Genscape revealing that crude inventories at Cushing, Oklahoma storage hub dropped 1.1 million barrels since Friday, July 27.

However, buying also picked up after WTI slipped below $67 to a six week low: "Technical support came into the market there," explained John Kilduff, founding partner at Again Capital.

Meanwhile, Iran continues to weigh heavily in the minds of analysts, especially given that Washington believes the Islamic republic will move up the timing of its annual drills and carry out a major exercise in the Gulf in coming days: "There are a lot of escalation points that could occur very quickly and that worries me," said Jonathan Barratt, chief investment officer at Ayers Alliance.

While the sabre rattling between the two countries could result in a further escalation in prices, crude could just as easily continue the downward trajectory it has been following of late, due to counter fears that tensions between the U.S. and China could slow economic growth and, by extension, energy demand.

This much was conceded on Thursday by Abhishek Kumar, senior energy analyst at Interfax Energy, who noted, "It is almost certain that China will impose additional duties on oil and refined products imported from the U.S. if the Trump administration implements additional tariffs on the next tranche of Chinese goods; this could severely dent the competitiveness of U.S. oil and derivatives in the Chinese market."

Left unsaid was the prospect that if the trade war results in slower global economic growth, then the removal of Iranian oil on the market will have less impact that currently thought; further, the increased output being undertaken by countries such as Russia could send supplies into a bigger than expected surplus and cause prices to drop further, much to the relief of American motorists as well as countries with emerging but fragile economies such as India.

Data from Russia's energy ministry on Thursday showed that the former Soviet Union boosted output by 150,000 barrels bpd in July from a month earlier, surpassing the amount Moscow had promised during a recent meeting of global oil producers in Vienna.

Russian oil production rose to 11.21 million bpd in July versus 11.06 million bpd in June, and these figures were accompanied by Alexander Novak, energy minister for Russia, stating that the increased output was aimed at "maintaining stability of the oil market within the framework of joint actions of OPEC [the Organization of the Petroleum Exporting Countries] and non-OPEC countries."

Novak earlier said that his country will increase production by 200,000-250,000 bpd.

Earlier this week, Bakhit al-Rashidi, oil minister for Kuwait, said, "It is clear today based on the current level of production that we are approaching a very stable stage...whether for the consumers or the producers."