Oil rose in London, recovering some of the biggest losses in more than two years, as the International Energy Agency (IEA) warned that output in OPEC’s Gulf members maybe stretched to the limit by supply losses elsewhere in the group.
Brent crude climbed as much as 2.3% on Thursday after slumping 6.9% on Wednesday, the steepest loss in percentage terms since 2016. Saudi Arabia may see its spare capacity dwindle to “unprecedented” levels as it seeks to offset losses in Venezuela, Iran and beyond, the IEA said in a report.
Prices sank on Wednesday even though US crude inventories fell the most in almost two years, amid concern that the escalating trade war between the US and China will hurt economic growth.
“The fundamental reality of low spare capacity globally and Iranian output set to decline considerably” should “keep the oil market vulnerable to disruptions in the year ahead,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich.
Oil rallied to fresh three-year highs in the past few weeks as global output disruptions and renewed US sanctions on Iran raise concerns of a supply crunch. While bracing for the potential escalation of the trade war, oil markets are also awaiting more clarity on US policy on Iranian crude exports as well as whether the Organization of Petroleum Exporting Countries (OPEC) can increase production to alleviate market tightness.
Brent for September settlement added 1.1% to $74.20 a barrel on the London-based ICE Futures Europe Exchange at 12:48 PM local time. Prices on Wednesday tumbled $5.46, the sharpest pullback in dollar terms since 2011. The global benchmark traded at a $4.78 premium to West Texas Intermediate for the same month.
WTI crude for August delivery rose 0.7% to $70.88 a barrel on the New York Mercantile Exchange, after slumping $3.73 on Wednesday. Total volume traded was about 27% above the 100-day average.
Saudi Arabia’s spare production capacity may fall to unprecedented levels of below 1mn barrels a day as the kingdom tries to make up for losses in Iran and Venezuela, the Paris-based IEA said. Iran’s exports could slump 50% or more as US sanctions deter buyers, and Venezuela’s economic crisis may drag its output below 1mn barrels a day, according to the agency.
After President Trump’s administration earlier this week unveiled a list of $200bn of Chinese products that will face additional tariffs, China vowed to retaliate. Then later, the country’s Vice Minister of Commerce Wang Shouwen called on his US counterparts to resolve the conflict through a new round of bilateral negotiations.
Meanwhile, US crude stockpiles fell by 12.6mn barrels last week, the Energy Information Administration said in a report. That compares with a drop of 3.79mn forecast in a Bloomberg survey of analysts. Inventories at the key storage hub in Cushing, Oklahoma, declined by 2.06mn barrels to the lowest since December 2014.