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Oil Prices Slip Back as Geopolitics Add to Pressure

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08/11/2017 | 02:19 am

By Jenny W. Hsu

Crude futures turned lower in midmorning Asian trading after rebounding a bit earlier following overnight declines.

While oversupply remains a heavy drag on the market, players are also keeping a close eye on the escalating tensions between North Korea and U.S. At the moment, the verbal jousting hasn't translated into any concrete actions, but markets are monitoring the situation closely.

Oil, like most commodities, such as gold, usually gets a boost in times of political tension.

"The latest threats over North Korea have finally escalated to the point where market has been obliged to react," said CMC Markets analyst Ric Spooner.

But there was little sign of that early Friday as oil-market fundamentals remain pressured.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in September was recently down 0.1% at $48.56 a barrel in the Globex electronic session. October Brent crude on London's ICE Futures eased 0.3% to $51.72. Both were up slightly earlier in the session.

In its latest monthly report, the Organization of the Petroleum Exporting Countries said the cartel's July production rose 0.5% from June to 32.9 million barrels a day. That was mostly due to Libya and Nigeria, the two suppliers exempt from the ongoing production-curtailment pact. The growth, though slower than previous months, still stoked concerns that the deal isn't producing the anticipated results.

Even Saudi Arabia, the de-facto head of OPEC, exceeded its output cap last month. However, the kingdom said its high production was to meet peak summer demand domestically. Moreover, Saudi Arabia committed to cut its exports again in September in an effort to bolster market sentiment.

In the U.S., the looming end of the summer driving season is raising demand concerns. "Investors are starting to factor in a reversal of the recent fall" in U.S. crude stockpiles, said ANZ Research.

One bullish aspect of OPEC's report Thursday was its upward projection regarding 2018 global oil demand. The cartel also believes production growth from rival suppliers will slowly peter out next year.

"We'll wait for Friday's International Energy Agency forecast...but OPEC's assessment is consistent with a third-quarter deficit on the order of 500,000 barrels a day," said Tim Evans, a Citi Futures analyst.

Refined-product prices were also lower in Asia on Friday. Nymex September diesel was recently down 0.2% at $1.6287 a gallon, reformulated gasoline blendstock slid 0.5% to $1.5947 and August ICE gasoil fell 1.2% to $480.50 per metric ton.

Write to Jenny W. Hsu at jenny.hsu@wsj.com

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