Weekly Review

Oil prices fell last week mostly on concerns that the looming US-China trade war would stifle demand. There was a short-lived rally on Thursday after the stocks report showed a 3.8 million barrel increase in total crude stocks mostly due to lower exports, but a 1.1 million drop in the inventory at Cushing, Okla. For now, the markets seem well supplied with production by Russia, the Saudis and the Gulf Arabs increasing after the relaxation of the market cap, and there has not yet been a significant reduction in Iranian exports in response to the new US sanctions. The week ended with New York oil futures down to $68.49 and London down to $73.21.

Oil prices climbed steadily through Thursday last week, supported by easing US-EU trade tensions and a temporary shutdown by the Saudis of a critical crude oil shipping lane. On Friday prices fell in sympathy with the US equities market to end the week at $74.29 in London and $68.69 in New York. Crude prices were unfazed last week by the unexpectedly robust US GDP figure, or the threatening rhetoric exchanged between Tehran and Washington.

The $3 drop in US oil prices last Monday was a signal that the forces moving the oil market are changing. Last year, the main forces pushing the oil markets higher were the agreement by OPEC and its partners to lower production and the growth of global demand. This year, an array of factors are pressuring the oil markets: the US sanctions that threaten to cut Iranian oil exports; US-China trade tensions; OPEC’s decision to raise crude output; and dwindling oil production from Venezuela. Moreover, there are supply disruptions in Libya, the Canadian tar sands, Norway, and Nigeria that add to the uncertainties as does erratic policymaking in Washington, complete with threats to sell off part of the US strategic reserve and a weaker dollar.

Oil prices dropped suddenly last Wednesday on the news that yet another dispute in Libya had been settled so that the traditional Libyan National Oil company was back in business exporting oil from its major terminals. New York futures fell by $3.50 a barrel on the news, and the London price decreased by $6.50, with New York closing out the week at $71 and London at $75.33.

Oil prices traded in a narrow range last week, between $73-$74 a barrel in New York, and $77-78 in London. A surprise increase in the US crude stocks balanced off the uncertainties of the US-China trade war that began on Friday. The announcement that the Saudis had increased production by 500,000 b/d in June helped keep the lid on prices despite the worsening prospects for global trade.