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Oil settles Monday with a modest gain as traders weigh U.S.-Saudi tensions versus demand worries

By Mayra P. Saefong

Petroleumworld 10 15 2018

Oil futures pared earlier gains on Monday to settle modestly higher as tensions between the U.S. and Saudi Arabia linked to a missing dissident journalist appeared to ease.

Worries about outlook for crude demand also kept price gains in check, analysts said.

November West Texas Intermediate crude CLX8, +0.10% rose 44 cents, or 0.6%, to settle at $71.78 a barrel on the New York Mercantile Exchange, after touching a high of $72.70. It fell about 4% last week. December Brent crude LCOZ8, +0.19% the global benchmark, added 35 cents, or 0.4%, to $80.78 a barrel on the ICE Futures Europe exchange, after a 4.4% drop last week.

In an interview on Sunday , President Donald Trump threatened “severe punishment” if an investigation finds the kingdom in any way involved in the disappearance of dissident Saudi journalist Jamal Khashoggi, who was last seen entering the Saudi consulate in Istanbul on Oct. 2.

Firing back, Riyadh vowed even stronger retaliation against any moves from Washington, adding that the nation “plays an effective and active role in the global economy.” In addition, an editorial by Saudi-owned Al Arabiya channel's general manager Turki Aldakhil on Sunday warned that any sanctions imposed on the country could push oil prices to $100, $200 or even double that amount.

Trump on Monday, however, said he had spoken with Saudi Arabia's King Salman, who the president said had vehemently denied any involvement in Khashoggi's disappearance. Trump, who dispatched Secretary of State Mike Pompeo to Saudi Arabia to meet with the king, said it was possible that “rogue killers” were behind the incident.

Trump may be “looking for a way to blame this on someone other than the Saudi royal family," Matt Badiali, a senior research analyst at Banyan Hill Publishing, told MarketWatch.

“However, if Congress moves to sanction Saudi Arabia, it will cause oil prices to jump higher,” he said. “Remember this comes at a particularly delicate time for oil supply. U.S. sanctions will kick in on Iran next month. Venezuela's oil supply continues to decline steadily. Any disruption to the Saudi supply or even perception of trouble will cause the price to go up.”

So if Congress takes a “hard line” on Saudi Arabia, Badiali expects to see Brent prices up around $100-plus per barrel, with WTI spiking up near $90 per barrel. “It won't last long, but there is potential for high volatility with the market tight,” he said.

However, gains for oil were being kept in check by potential headwinds for prices. Last week's International Energy Agency monthly report pointed to lower global oil demand, citing potential knock-on effects from a U.S./China trade dispute. The Organization of the Petroleum Exporting Countrieslowered its global oil demand growth forecast for demand this year and next, as it showed rising OPEC and Russian production.

That would more than make up for a decline in Iranian output ahead of the implementation of U.S. sanctions on Iran's oil industry.

Recent data suggest further gains in U.S. production.

Data from Baker Hughes BHGE, -0.52% Friday showed that the number of active U.S. rigs drilling for oil , which offers a peek at output activity, climbed by 8 to 869 this week.

A monthly report from the Energy Information Administration released Monday showed expectations for a rise of 98,000 barrels a day in crude-oil production from seven major U.S. shale plays in November to 7.714 million barrels a day.

Back on Nymex Monday, November gasoline RBX8, +0.05% rose 0.1% to $1.944 a gallon, while heating oil HOX8, +0.11% for the same month added 0.2% to $2.326 a gallon. November natural gas NGX18, +0.89% jumped 2.6% to $3.242 per million British thermal units.

Last week, WTI oil lost roughly 4% and Brent finished down 4.4% , with the losses linked to a two-day selloff across global stock markets, with questions over economic strength in the U.S. and globally, and eventual energy consumption. U.S. stock indexes saw mixed trading Monday as oil futures settled. Asian stocks finished lower.


Story by Mayra P. Saefong from MarketWatch.
10 15 2018 17:35 GMT

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