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Oil Rises on Supply Risks After Longest Losing Run Since 2015

Oil Bounces After Longest Losing Run Since 2015 on Supply Risks

(Bloomberg) -- Oil prices advanced for the first week in two months amid signs of tighter supply from the North Sea to the Middle East.

Futures in New York were up 4.3 percent for the week, ending the longest streak of losses since 2015. U.S. crude stockpiles dropped by more than twice what analysts expected last week, while strikes at Total SA’s fields in the North Sea could curb supply. Iran’s exports are set to decline sharply as renewed U.S. sanctions take effect, analysts at FGE and Cowen & Co. said, while Unipec is said to be resuming purchases of U.S. oil again.

“This week marks an impressive rebound in fortunes for the oil market,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. in London. “This is largely due to a tightening fundamental outlook on the back of looming Iranian supply shortages.”

Oil Rises on Supply Risks After Longest Losing Run Since 2015

Oil has recovered about 6 percent since sinking in mid-August to the lowest in almost two months. The supply threats are partly offsetting concern that the trade dispute between the U.S. and China, along with the risk of contagion from Turkey’s economic crisis, could hurt global oil demand.

“We saw a quick correction following concerns of demand growth and escalation of trade tensions,” said Gene McGillian, manager of market research at Tradition Energy. “But, when you step back and look at inventories, they’re at multiyear lows and we continue to see signs that global demand growth is strong.”

West Texas Intermediate crude for October delivery rose 89 cents to settle at $68.72 a barrel on the New York Mercantile Exchange. Total volume traded was about 30 percent below the 100-day average.

Brent for October settlement increased $1.09 to settle at $75.82 a barrel on the London-based ICE Futures Europe exchange. The contract is up more than 5 percent on the week. The global benchmark crude settled at $7.10 premium to WTI.

Supply Fears

The North Sea industry faces further industrial action starting next month. The Alwyn, Dunbar and Elgin fields operated by Total will be affected by a series of 12-hour strikes after talks on pay and working hours broke down, the U.K.’s Unite union said on Thursday.

Meanwhile, U.S. oil rigs fell by nine this week to 860, according to data from oilfield service provider Baker Hughes, the steepest weekly drop since May 2016.

U.S. government data released on Wednesday showed that nation’s crude stockpiles declined by 5.84 million barrels last week.

Industry consultant FGE predicts that Iranian oil exports will drop below 1 million barrels a day by the middle of next year after the U.S. reimposes sanctions targeting its crude in early November. The Persian Gulf nation has shipped about 2.5 million barrels a day of crude and condensate so far this year, FGE said in an Aug 23 report.

Still, investors remain wary that escalating tariffs imposed by the U.S. and China could imperil global economic growth and weaken energy demand. Trade talks between the nations wrapped up Thursday without major progress, setting the stage for further escalation of the conflict between the world’s two largest economies.

Money managers cut their bullish ICE Brent crude oil bets for the week ended Aug. 21, with net-longs at the lowest in 13 months, according to ICE Futures Europe data.

Other oil-market news:

  • Colombia’s state-owned oil company Ecopetrol SA plans to expand its oil and gas reserves through acquisitions, while also increasing its presence in the U.S.
  • Japanese refiner JXTG is suspending marine shipments of oil products from several refineries after Typhoon Cimaron strikes western Japan, company says
  • China’s Cnooc Ltd. said it plans to boost spending through the remainder of this year to meet investment targets as the resurgence in crude prices pushed its half-year profit to the highest since 2014.

--With assistance from Tsuyoshi Inajima, Sharon Cho and Grant Smith.

To contact the reporter on this story: Catherine Ngai in New York at cngai16@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Debarati Roy, Carlos Caminada

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