Oil prices were stable yesterday, partly as a result of supply concerns ahead of the start of U.S. sanctions against Iran’s crude exports, but held back by rising drilling activity in the United States.
Front-month Brent crude oil futures were trading at $79.74 a barrel, 4 cents below their last close at the end of last week, while the U.S. West Texas Intermediate (WTI) crude futures were at $69.07 a barrel, 5 cents below their last settlement. U.S. sanctions against Iran’s oil exports will start on November 4.
While the Organization of the Petroleum Exporting Countries (OPEC) agreed in June to boost supply to make up for expected Iran disruptions, an internal document reviewed by Reuters suggested that OPEC is struggling to add barrels to the market as an increase in Saudi Arabian supply was offset by declines in Iran, Venezuela and Angola.
Traders said major oil consumers were stockpiling in anticipation of more disruptions. “In China, higher seasonal demand and suspected stockpiling are occurring, while similarly the U.S. and the OECD continue building stockpiles ahead of potential supply disruptions this winter,” said Stephen Innes, head of trading for Asia/Pacific at futures brokerage Oanda in Singapore.
Despite this, Innes said overall global oil supply was currently enough to meet demand. “While the supply-demand equilibrium remains fragile … Brent remains in good short-term supply despite growing uncertainty about supply disruptions,” he said.
There were also some signs of rising output, especially in North America. U.S. drillers added four oil rigs in the week to October 19, bringing the total count to 873, Baker Hughes energy services firm said on Friday, raising the rig count to the highest level since March 2015.
The U.S. rig count is an early indicator of future output. With activity rising again after months of stagnation, U.S. crude production is also expected to continue to rise. Looking further out, concern that the trade dispute between the United States and China would crimp economic growth may weigh on the outlook for oil prices.
“The full impact of the U.S.-China trade war will hit markets in 2019 and could act as a considerable drag on oil demand next year, raising the possibility of the market returning to surplus,” said Emirates NBD bank in a note.
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