Oil trades near $67 as investors assess outlook for U.S. crude

By Tsuyoshi Inajima on 8/21/2018

TOKYO (Bloomberg) -- Oil traded near $67/bbl  as investors weighed an expected decline in American inventories against the U.S. government’s plans to release crude from its emergency stockpiles.

Futures in New York climbed 0.5%. The U.S. government will offer 11 MMbbl of crude from its Strategic Petroleum Reserve, a move that could help offset a tight oil market from sanctions on Iran’s exports. Stockpiles in the shale country are expected to have declined last week. Meanwhile, investors are also awaiting trade talks between China and the U.S., and Federal Reserve Chairman Jerome Powell’s speech later this week.

The planned release from the U.S. SPR “could curb a rise in crude prices,” Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp., said by phone. “Traders are taking a wait-and-see stance ahead of the SPR release, U.S.-China trade talks and Powell’s speech at Jackson Hole.”

Oil has declined for seven straight weeks as uncertainty over a U.S.-China trade standoff and the risk of economic turmoil in Turkey spilling over into other emerging markets weighed on prices. Investors are also closely watching supplies from the U.S. and the Organization of Petroleum Exporting Countries before American sanctions on Iran’s oil take effect in November. The measures may curb the Persian Gulf nation’s exports by as much as 1 MMbpd.

West Texas Intermediate crude for September delivery, which expires on Tuesday, rose 0.5% to $66.73/bbl on the New York Mercantile Exchange at 3:29 p.m. in Tokyo. The contract climbed 52 cents to $66.43 on Monday. The more-active October contract added 8 cents to $65.50. Total volume traded Tuesday was about 53% below the 100-day average.

Brent for October traded at $72.13/bbl on the London-based ICE Futures Europe exchange, down 8 cents. Prices on Monday advanced 38 cents to close at $72.21. The global benchmark crude traded at a $6.64 premium to WTI for the same month.

Futures for December delivery rose 1% to 496.4 yuan a barrel on the Shanghai International Energy Exchange. The contract dropped 1.1% on Monday.

The release of crude from the U.S. strategic reserve from October to December is viewed by the oil market as intended to help soften the impact of measures against Iran and lower gasoline prices for voters, Jogmec’s Nogami said. The renewed sanctions will take full effect in early November, followed by American midterm elections on Nov. 6.

Stockpile slide

On the other hand, U.S. crude stockpiles are forecast to have declined by 2 MMbbl last week following a surprise gain a week earlier, according to a Bloomberg survey of analysts before the Energy Information Administration’s data due Wednesday. Inventories at the Cushing storage hub in Oklahoma rose 900,000 bbl last week, according to a survey compiled by Bloomberg.

In wider financial markets, Powell’s remarks at the Jackson Hole gathering in Wyoming on Aug. 24 will be closely watched as investors seek clues on the outlook for the central bank’s plans. The Federal Reserve chairman’s speech comes after President Donald Trump was said to lament at a fundraiser last week that Powell had raised interest rates.

In Washington, a Chinese delegation led by Vice Commerce Minister Wang Shouwen will meet their U.S. counterparts for trade talks after earlier negotiations broke down. The announcement last week that the two countries are returning to the negotiation table spurred optimism a full-blown trade war could be averted. Negotiations between the U.S. and China are scheduled for August 22 and 23, the Wall Street Journal reported.

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