Published: Thu, October 18, 2018
Money | By Bruce West

Oil prices edge up on surprise drawdown in USA crude stockpiles

Oil prices edge up on surprise drawdown in USA crude stockpiles

Oil prices fell on Wednesday, with US futures settling below $70 a barrel for the first time in a month, after USA crude stockpiles rose 6.5 million barrels, nearly triple what analysts had forecast, while exports dropped.

US West Texas Intermediate (WTI) crude was up 15c, or 0.2%, at $72.07 a barrel by 2.55am GMT on Wednesday, having settled up 14c.

U.S. President Donald Trump is intimidating others to cut oil prices while the world is facing a shortage of crude supplies.

"Numbers from the American Petroleum Institute surprised the market yesterday, with US crude oil inventories declining by 2.13 million barrels over the last week, compared to expectations of a stock build", said ING commodities strategist Warren Patterson. Iran is its third-largest supplier after Iraq and Saudi Arabia and meets about 10 per cent of the total needs.

Inventories rose sharply even as USA crude production slipped 300,000 bpd to 10.9 million bpd last week, which analysts attributed to the effects of offshore facilities closing temporarily for Hurricane Michael.

In May, U.S. President Donald Trump pulled Washington out of the 2015 worldwide deal on Tehran's nuclear program and vowed to restore sanctions on Iran's oil exports on November 4. The new round of USA sanctions against Tehran are set to start in November 4.

The Russian government is no longer capping oil output increases by local producers, one of the country's top energy companies, Gazprom Neft, said on Tuesday, signalling that Moscow's supply-restraint pact with OPEC has effectively expired for now.

Saudi Arabia tensions did not cause the collapse in Saudi equities nor any move in crude oil.

However, the physical side of the crude oil market tells a more relaxed story, with some signs that the loss of Iranian barrels is so far being adequately compensated.

A claim by the United States that it aims to reduce Iran's oil exports to zero is a "political bluff", the head of the state-run National Iranian Oil Company was quoted as saying. "This would be so destabilizing for global markets that it would make the current trade tensions between the USA and China look like a game of Axis & Allies".

Zanganeh said the rise of oil prices was a "self-inflicted pain" caused by US sanctions against Iranian energy exports, and could be resolved by lifting the measures.

"What you can say beyond doubt is that it's creating lots of exotic trade flows that hadn't been in the market before", he said.

Flows from Iran could drop by 2 million barrels a day, to below 1 million barrels day in November and possibly December, Energy Aspects Ltd. said in a report dated October 1.

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