Oil Pinned Near $69 as Supply Risks Weighed Against Trade Battle

(Bloomberg) -- Oil's trading in a tight range as investors weigh falling U.S. inventories and potential supply curbs in the Middle East against escalating trade tensions between the world's two largest economies.

Futures in New York were little changed after a 0.8 percent gain Monday. They have traded within a $3 range so far in August, the tightest spread since 2003 based on monthly data. While expectations for falling U.S. stockpiles during the summer driving season and fears over lower Iranian exports have supported gains, concerns that a trade war between China and American will hurt consumption have kept a lid on prices.

Crude has declined about 7 percent from the highs of June as the trade dispute threatens to imperil economic growth that underpins energy consumption. While Saudi Arabia was said to have cut production last month despite a pledge in June by the Organization of Petroleum Exporting Countries and allies to add more barrels, Russia said it has the capacity to lift output to a post-Soviet record. Meanwhile, the U.S. is seeking to restrict Iranian oil sales via sanctions.

“U.S. crude stockpiles are seen falling as the driving season continues, helping oil hold near $69 a barrel,” Will Yun, a commodities analyst at Hyundai Futures Corp., said by phone. “At the same time, oil's being pulled from the other side, with the ongoing trade dispute between the U.S. and China putting downward pressure on commodities including oil.”

West Texas Intermediate crude for September delivery traded at $69.06 a barrel on the New York Mercantile Exchange, up 5 cents, at 12:21 p.m. in Tokyo. The contract rose 52 cents to $69.01 on Monday. Total volume traded was about 52 percent below the 100-day average.

Brent for October settlement traded at $73.99 on the London-based ICE Futures Europe exchange, up 24 cents. The contract added 54 cents to close at $73.75 on Monday. The global benchmark crude traded at a $5.96 premium to WTI for the same month.

Futures for September delivery surged by their 5 percent daily limit against Monday's settlement to 537.2 yuan a barrel on the Shanghai International Energy Exchange, the highest level since the contract's debut in late March.

See also: Oil Market Moving Toward Tightness, Goldman's Della Vigna Says

In the U.S., nationwide crude stockpiles may have dropped by 3 million barrels last week, while inventories in the storage hub at Cushing, Oklahoma, may have declined by 1 million barrels for a twelfth straight week of losses, according to a Bloomberg survey before Energy Information Administration data on Wednesday.

Meanwhile, U.S. President Donald Trump moved to restore some American sanctions on Iran and reaffirmed plans to impose tougher penalties on the Persian Gulf nation's oil sales in November, further raising concerns over a potential supply shortage. Iranian President Hassan Rouhani said his country is open to talks with the U.S., but not under sanctions.

Oil-market news:

• Saudi Arabia is sending the most crude oil to the U.S. in 15 months. The world's largest oil exporter loaded 1 million barrels a day onto tankers bound for the U.S. in July, according to preliminary vessel-tracking data compiled by Bloomberg.
• Rising costs and dwindling pipeline space have some U.S. oil companies doing what was once unthinkable: saying no to the coveted Permian shale region.

--With assistance from Tsuyoshi Inajima.

To contact the reporter on this story: Heesu Lee in Seoul at hlee425@bloomberg.net

To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net, Anna Kitanaka

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