Oil Falls as Economic Uncertainty Outweighs U.S. Supply Decline
Oil futures in New York were up 0.5% after rallying 2.7% over the previous three days.
(Bloomberg) -- Oil posted the biggest drop in almost a week as uncertainty over the health of the global economy and the prospect of more Middle East output offset a drop in U.S. supply.
Futures in New York closed down 1.6% on Wednesday, in a volatile trading session that snapped a three-day rally. Demand is looking shaky following disappointing manufacturing data from the U.S. and Europe.
Meanwhile, Kuwait said it’s working with Saudi Arabia to resume oil production in neutral territory that has been shuttered for at least four years. The timeline and actual impact on production is unclear, but a potential resumption could add 500,000 barrels per day.
Kuwait and Saudi Arabia “are looking at some pretty significant expansion plans,” said Ashley Petersen, an oil analyst at Stratas Advisors LLC in New York. “It is enough to impact the market and make up for some of these missing barrels from Venezuela and Iran.”
The bleak economic news helped erase gains earlier in the session that were sparked by a sixth straight weekly decline in American inventories and the biggest drop in U.S. production in almost two years.
West Texas Intermediate for September delivery closed down 89 cents at $55.88 a barrel on the New York Mercantile Exchange, erasing a short-lived rally that followed the EIA data. Brent for September settlement lost 65 cents to $63.18 on the London-based ICE Futures Europe Exchange. The global benchmark crude traded at a $7.30 a barrel premium to WTI.
“It looks like the market is still concentrated on economic uncertainty,” Josh Graves, senior market strategist at RJO Futures in Chicago, said in an interview.
The EIA reported that domestic oil inventories decreased 10.8 million barrels in a sixth weekly decline -- the longest contraction since January 2018. Production from American fields slid the most since October 2017, largely due to Hurricane Barry’s impact on Gulf of Mexico operators earlier this month.
“Everyone is shrugging off the report as being caused by the hurricane," Petersen said. “I think markets realized pretty quickly that was a transitory draw and isn’t likely to be repeated."
The outlook for energy demand remains dim, with the International Monetary Fund cutting its global growth projections and warning that policy “missteps” on trade and Brexit could derail a rebound.
Saudi Minister of State for Energy Prince Abdulaziz Bin Salman was in Kuwait Wednesday for discussions about the neutral zone, according to Kuwait’s state-run KUNA news agency. The two sides will continue discussions about resuming production in the border area, a Kuwaiti government spokesman said.
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--With assistance from James Thornhill, Saket Sundria and Grant Smith.
To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net
To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Mike Jeffers, Joe Carroll
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