Oil Under Pressure Due to Rising U.S. Inventories

Mae Love
September 19, 2018

Oil eased on Wednesday, but held near its highest level this year, as concerns that producers may fail to cover a supply shortfall once USA sanctions on Iran come into force outweighed an increase in US inventories.

Brent crude futures LCOc1 had dropped 22 cents, or 0.28 percent, to $78.81 per barrel by 0042 GMT, chipping away at Tuesday's 1.26 percent gain.

USA crude futures CLc1 settled up $1.27, or 1.8 percent, at $71.12 a barrel.

Supporting crude futures were potential supply cuts from USA sanctions on Iran.

Crude oil prices peaked at a near-term high of with WTI tapping into 70.40 on Tuesday, but was unable to make a challenge of last week's high of 71.25 after United States oil inventories showed yet another surprise build-up in their barrel counts yesterday.

Brent may fall more than $1 to $76.37 a barrel, while WTI crude prices may revisit their September 14 low of $67.94, he wrote.

Speaking on the development, an analyst at Price Futures Group, Phil Flynn said:"The uncertainty surrounding the trade war is definitely something the market is concerned about in the short-term".

Prices rose on Tuesday amid media reports that Saudi Arabia, the world's largest oil exporter, was comfortable with prices climbing above $80 a barrel.

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Reuters reported on September 5 that Saudi Arabia wants oil to stay between $70 and $80 a barrel to keep a balance between maximizing revenue and keeping a lid on prices until US congressional elections.

OPEC is meeting soon to discuss output limits, which will give Saudi Arabia a chance to blame the United States for rising prices.

The focus on oil supply has been reflected in the options market this week, where investors have scooped up large amounts of bullish buy, or call, options.

The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers, including the world's biggest producer Russian Federation, are meeting on September 23 in Algeria to discuss how to allocate supply increases within their quota framework to offset the loss of Iranian oil supply.

Meanwhile, oil output from seven major U.S. shale formations is expected to rise by 79,000 bpd to 7.6 million bpd in October, the U.S. Energy Information Administration said on Monday.

The Bank of America Merrill Lynch has said that ahead of the U.S. crude sanctions against Iran in November, the oil producer has decreased its export loadings by 580,000 barrels per day in the past three months.

USA stock indexes broadly fell on Monday, weighing on oil futures, on expectations that the Trump administration would go ahead with the new tariffs and that Beijing would retaliate.

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