Oil Slides on Prospect of Easing Geopolitical Risk, More Supply

Oil traded near $60 a barrel as U.S. crude inventories were forecast to fall for a fifth week.

17 Jul 2019, 04:39 AM IST

Oil Slides on Prospect of Easing Geopolitical Risk, More Supply

Steam rises from an oil refinery on the outskirts of Beijing, China. (Photographer: Kevin Lee/Bloomberg News)

(Bloomberg) -- Oil slid for a second day as the U.S. raised hopes of easing tensions with OPEC member Iran, while President Donald Trump’s threat of new tariffs on China rekindled fears about demand.

Futures declined 3.3% in New York on Tuesday, adding to Monday’s 1.1% drop. U.S. Secretary of State Mike Pompeo said Iran, which has been hit by American sanctions over its weapons program, had signaled an openness to talks. The Islamic Republic’s foreign minister made similar comments, offering the first hint of a diplomatic solution since the Trump announced plans in May 2019 to squeeze Iranian oil exports.

Meanwhile, in the U.S., the industry-funded American Petroleum Institute reported U.S. distillate stockpiles rose by 6.23 million barrels last week. That would be the largest build since January if Energy Information Administration data confirms it on Wednesday.

At the same White House meeting where Pompeo spoke, President Donald Trump reiterated that he could impose additional tariffs on Chinese imports, despite promising to hold off on more duties in a trade-war truce he reached with China’s Xi Jinping last month. U.S. equities markets retreated as well on the prospect that the spat between the world’s two top economies could persist.

The recent declines have scuppered a month-long oil rally, with fears about global demand and surging U.S. shale supplies reemerging. Crude’s also lost some of the uplift from Hurricane Barry, which shuttered almost three-quarters of Gulf of Mexico output over the weekend. Explorers and refiners along the Gulf coast have begun returning employees to work as the storm moves inland.

“Bullish catalysts are in short supply,” analysts at London-based broker PVM Oil Associates Ltd. said in a note to clients. “The Gulf Coast of Mexico hurricane premium is fading as offshore operations in the region resume. At the same time, the U.S. shale engine continues to give oil bulls a sleepless night.”

August West Texas Intermediate oil traded at $57.63 a barrel at 4:43 p.m. in New York after settling at $57.62 a barrel on the New York Mercantile Exchange, its steepest decline since July 2. Brent futures for September settlement declined $2.13 to $64.35 on the ICE Futures Europe Exchange in London. The global benchmark crude was at a premium of $6.61 to WTI for the same month.

The API also reported domestic crude stockpiles fell by 1.4 million barrels, while Cushing, Oklahoma, supplies decreased by 1.12 million barrels. Gasoline inventories fell 476,000 barrels.

Oil climbed earlier in the session along with U.S. equities after American retail sales, factory output and housing reports all beat forecasts. However, the rally fizzled amid speculation the data could deter the Federal Reserve from cutting interest rates.

Royal Dutch Shell Plc and ConocoPhillips are among companies seeking to restore output at offshore platforms in the Gulf of Mexico now that weather conditions have improved. The region accounts for 16% of total U.S. crude oil production, according to the Energy Department.

The outages over the weekend are expected to show up in the next tally of American stockpiles. Analysts in a Bloomberg survey are predicting a 3 million drop in inventories last week -- a fifth straight decline -- when the government releases the data on Wednesday.

Other oil-market news:
Iran responded to a request for assistance from a foreign tanker in the Persian Gulf that had technical difficulties, ISNA news agency reported, citing Foreign Ministry spokesman Abbas Mousavi. That was after an official from the United Arab Emirates said a small oil tanker that apparently went missing in the Persian Gulf isn’t owned or operated by the U.A.E. and hasn’t sent out a distress call. Iranian Supreme Leader Ayatollah Ali Khamenei said the U.K.’s seizure of an Iranian oil tanker this month was an act of piracy, warning that it won’t be left unanswered by the Islamic Republic. Mexico’s Petroleos Mexicanos aims to balance its budget by 2021 and reverse a decade and half of declining crude production as early as next year. Gasoline futures in New York fell 2% to $1.8918 a gallon.

Other oil-market news:

Iran responded to a request for assistance from a foreign tanker in the Persian Gulf that had technical difficulties, ISNA news agency reported, citing Foreign Ministry spokesman Abbas Mousavi.
- That was after an official from the United Arab Emirates said a small oil tanker that apparently went missing in the Persian Gulf isn’t owned or operated by the U.A.E. and hasn’t sent out a distress call.
Iranian Supreme Leader Ayatollah Ali Khamenei said the U.K.’s seizure of an Iranian oil tanker this month was an act of piracy, warning that it won’t be left unanswered by the Islamic Republic.
Mexico’s Petroleos Mexicanos aims to balance its budget by 2021 and reverse a decade and half of declining crude production as early as next year.
Gasoline futures in New York fell 2% to $1.8918 a gallon.

--With assistance from James Thornhill, David Ingles, Yvonne Man and Tsuyoshi Inajima.

To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net;Alex Longley in London at alongley@bloomberg.net

To contact the editors responsible for this story: Serene Cheong at scheong20@bloomberg.net, Catherine Traywick