Oil rises as investors weigh Saudi action against demand concern

By Kiran Dhillon on 8/9/2019

HOUSTON (Bloomberg) - Oil surged to start the U.S. session as investors weighed the latest steps from Saudi Arabia following a selloff earlier in the week.

WTI rose as much as 4.1% in New York, but is still on track to lose about 2% this week. The deepening spat between Beijing and Washington and a surprise gain in U.S. stockpiles helped drive prices to a seven-month low on Wednesday. The International Energy Agency on Friday called the demand outlook “fragile.” Saudi Arabia responded to the rout with a plan to limit output and exports in September.

"The market is digesting the details of the EIA report and the Saudi response to the price drop," said Ashley Petersen, lead oil market analyst at Stratas Advisors. "We’re seeing a re-balancing of the market after such a big loss earlier in the week."

Market digests trade risks

A large-volume bullish options trade was reported just after 9 a.m. in New York, for 25,500 contracts -- equivalent to 25.5 MMbbl. The buyer of the options would profit from a tighter supply and demand outlook for WTI at the end of the year, helping to push oil prices higher.

Crude has fallen about 7% this month as growing fears that the trade spat will expand into a currency war overshadow the risk of supply disruptions in the Middle East. The IEA in its monthly report trimmed forecasts for oil-demand growth this year and next, and warned that it may lower the estimates further as the trade spat between the U.S. and China drags on.

“The recent escalation of U.S. trade measures against China has fueled risk aversion in global markets, and oil has not been immune to the turmoil -- despite supportive supply-side fundamentals,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA.

WTI for September delivery advanced $1.78 to $54.32/bbl on the New York Mercantile Exchange at 10:03 a.m. The contract rose $1.45 on Thursday, snapping three days of losses.

Brent for October settlement rose $1.52 cents to $58.90/bbl on the ICE Futures Europe Exchange. The global benchmark crude traded at a $4.57 premium to West Texas Intermediate for the same month.

Saudi Arabia, the top producer in the Organization of Petroleum Exporting Countries, plans to keep oil exports below 7 million barrels a day next month as it allocates less crude than customers demand, according to officials from the kingdom. State-run Saudi Aramco will provide customers across all regions with 700,000 bpd less than they requested, the officials said, asking not to be identified because the information isn’t public.

Amid oil’s slide, United Arab Emirates Energy Minister Suhail Al-Mazrouei insisted market fundamentals are good and prices are undergoing a “temporary overreaction” driven by speculation. “I am confident that OPEC+ will continue” its strong compliance with agreed production levels, he said on Twitter.

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