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Oil prices decline Monday as demand worries outweigh Iran supply challenges

By Mayra P. Saefong

Petroleumworld 10 29 2018

Oil futures finished lower Monday, pressured as losses in the Chinese stock market fed concerns over a potential slowdown in energy demand, even as U.S. sanctions on Iranian oil were expected to tighten global supplies.

Investors pondered whether Saudi Arabia and its oil-producing allies will be able to offset global supply losses anticipated from Iran when those sanctions begin next week.

West Texas Intermediate crude for December delivery CLZ8, -0.52%  on the New York Mercantile Exchange lost 55 cents, or 0.8%, to settle at $67.04 a barrel. The U.S. benchmark saw a loss of roughly 2.4% for last week . December Brent crude LCOZ8, -0.98% the global benchmark, fell 28 cents, or 0.4%, to $77.34 a barrel. It lost 2.7% last week.

Oil prices last week had posted a third weekly decline as sharp losses in global equity markets weighed on demand prospects. U.S. stock indexes had turned lower Monday by the time oil futures settled, and the Shanghai Composite index SHCOMP, -2.18% fell by more than 2% as U.S.-China trade relations continued to rattle investors' nerves.

Recent data has shown that “profits at industrial firms slowed for a fifth month” in China, said Craig Erlam, senior market analyst at Oanda. “The impact of tariffs is gradually showing up in the data and this may be lowering people's growth outlook for the country and weighing on demand expectations.”

Meanwhile, in recent weeks, rising production and exports between both the Organization of the Petroleum Exporting Countries and non-OPEC counterparts, including the U.S., have been weighing on the market from the supply side, while that heightened stock market vulnerability and concerns for the level of China's continued consumption have nagged at the demand side of the equation.

“Leveraged funds continued to exit oil longs in the week to October 23,” said Ole Hansen, head of commodity strategy with Saxo Bank, citing futures commitments of traders data.

“A Saudi pledge to produce as much as possible and the stock market rout has sharply reduced concerns about the Nov. 4 implementation of U.S. sanctions against Iran,” he said.

OPEC's Joint Ministerial Monitoring Committee “expressed concerns about rising inventories in recent weeks and noted looming macroeconomic uncertainties which may require changing course,” according to a news release last week . JMMC officials monitor implementation of crude output agreement that began on Jan. 1, 2017 between members and nonmembers.

What's more, Reuters reported that Saudi Arabia's Energy Minister Khalid al-Falih told state TV channel al-Ekhbariya that “we (have) entered the stage of worrying about this [latest production] increase,” adding that intervention might be required to return to stability.

Rising U.S. crude inventories also were a pressure point, with crude inventories surging 28.7 million barrels over the last five weeks, including the absorption of 3.5 million barrels from the Strategic Petroleum Reserve, said Jason Gammel, equity analyst at Jefferies, in a Friday note. Although the rise in crude inventories in part reflects seasonal factors, inventories of U.S. energy products have seen a modest decline of 10 million barrels over the same period.

On Nymex Monday, November gasoline settled at $1.825 a gallon, up roughly a penny, while November heating oil HOX8, -0.36%  fell by 0.8% to $2.284 a gallon. The November contracts for the products expire at Wednesday's settlement.

November natural gas NGX18, -0.66% which expired at the day's settlement, settled flat at $3.185 per million British thermal units. The new front-month contract, December natural gas NGZ18, -0.53%  fell 0.8% for the session to $3.198.


Story by Mayra P. Saefong from MarketWatch.

10 29 2018 19:33 GMT

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