Oil dips on rising United States crude inventories

Gladys Abbott
August 15, 2018

Volatility has thus become the flavor in recent months as oil markets reacted to increased supply from the OPEC, Russia and the US.

Oil prices moved sharply lower on Monday after data suggested inventories at the USA crude delivery hub rose in the latest week, compounding worries that troubled emerging markets and trade tensions will dent the outlook for fuel demand.

Chinese oil importers now appear to be shying away from buying USA crude oil as they fear Beijing may decide to add the commodity to its tariff list.

In direct communications with OPEC, Saudi Arabia reported that its monthly crude production slipped by 201,000 bpd in July, meaning that it pumped 10.288 million bpd last month - lower than the 10.387 million bpd figure secondary sources compiled by OPEC show.

Traders are also monitoring reports of multiple unsold crude oil cargoes around the Atlantic Basin, with producers including Russian Federation and Nigeria cutting prices for certain grades.

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OPEC has modeled four different scenarios to quantify the likely impact of trade tariffs on the global economy and global oil demand. In the worst-case scenario, however, global economic growth is seen at 3.66 percent this year and at 3.2 percent next year, compared to a base case forecast of 3.8-percent growth for 2018 and 3.6 percent in 2019.

While demand is deteriorating on the back of global trade tensions, slowing economic growth as well as liquidity concerns and has led to profit booking in the energy counter; on the other hand, a strong dollar and over-supply concerns are making a further dent on prices.

Oil production from the Organisation of Petroleum Exporting Countries (OPEC) rose in July, despite supply shortfalls from Libya, Iran and Saudi Arabia. It has also dented emerging market stocks while curbing growth and the outlook for oil demand. "This is potentially one of the biggest challenges commodities will face over the coming months", Ole Hansen, Head of Commodity Strategy at Saxo Bank, said in the bank's quarterly Q3 2018 outlook. This was attributed to a weaker-than-expected demand in Latin America and the Middle East during the second quarter of the year.

"Adding to the weakening price backdrop are signs that a deepening trade spat between the United States and China is undermining oil demand".

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