Oil rises on supply disruptions, large U.S. crude stock drawdown

Cornelia Mascio
Luglio 11, 2018

While the US futures contract is only edging higher, the Brent futures contract is surging due to rising supply concerns fueled by a potential wildcat strike by hundreds of oil workers in Norway.

Brent crude, the global oil benchmark, was up 1.4% at $79.14 a barrel on London's ICE Futures exchange, near the more than three-year high of $80.50 hit in May.

U.S. light crude futures were up 17 cents, or 0.2 percent, at $74.02.

The U.S., Saudi Arabia and Russian Federation all fear the start of a potential global economic slowdown if price rise too high.

USA crude inventories fell last week by 6.8 million barrels, according to data from industry group the American Petroleum Institute.

Analysts polled by Reuters forecast that crude stocks fell on average by 4.5 million barrels, ahead of government data at 10:30 a.m. EDT (1430 GMT) on Wednesday.

All three major stock indexes rose on Tuesday, and the S&P 500 posted its highest close since February 1.

"That basically took the wind out of the sails from the market", said Phil Flynn, analyst at Price Futures Group in Chicago. "Is it India?. Is it temporary waivers?"

Oil prices climbed toward a 3½-year high Tuesday, supported by supply issues across several major producing countries and continued uncertainty on the extent USA sanctions on Iran will curb the Middle Eastern country's exports.

Hundreds of workers on Norwegian offshore oil and gas rigs went on strike on Tuesday after rejecting a proposed wage deal, leading to the shutdown of one Shell-operated oilfield.

Also bullish to prices was plummeting production in Libya, where output has halved in five months to 527,000 barrels per day.

Earlier in the session, prices had been within striking distance of the four-year highs, said Bob Yawger, director of energy futures at Mizuho.

Saudi Arabia, fellow members of the Organization of the Petroleum Exporting Countries and allies including Russian Federation agreed last month to increase output to dampen price gains and offset global production losses in countries including Libya.

Iranian exports are expected to fall by 800,000 to 1 million barrels a day from their current level of 2.2 million barrels, said Dubai-based Ehsan Khoman, head of research for the Middle East and North Africa region at MUFG bank.

The Saudis could continue to offset the production losses from Iran, but that will use up global spare capacity and leave markets more vulnerable to further or unexpected production declines.

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