Oil prices settle up over US$1 after global tensions mount; oversupply caps gains
[HOUSTON] Oil prices settled higher on Wednesday by more than US$1 a barrel as investors worried about possible supply disruptions after Poland downed drones in its airspace and the US pushed for new sanctions on buyers of Russian oil the day after an Israeli attack in Qatar, but a report showing swelling US supplies capped gains.
Brent crude futures settled up US$1.10, or 1.7 per cent, at US$67.49 a barrel. US West Texas Intermediate crude futures rose US$1.04, or 1.7 per cent, to settle at US$63.67 a barrel.
Geopolitical tensions mounted when Poland shot down drones over its airspace during a widespread Russian attack in western Ukraine, the first shots by a Nato member in the Russia-Ukraine war.
On Tuesday, prices had settled 0.6 per cent higher after Israel said it had attacked leadership of the Palestinian militant group Hamas in Doha. Both benchmarks rose nearly 2 per cent shortly after the attack, then retraced most of those gains.
Still, there was no immediate threat of oil supply disruption
“The dark cloud of surplus ahead is ... hanging over the market with Brent trading two dollars lower than last Tuesday. Geopolitical risk premiums in oil rarely last long unless actual supply disruption kicks in,” SEB analysts said.
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US President Donald Trump has urged the European Union to impose 100 per cent tariffs on China and India - major buyers of Russian oil - as a strategy to pressure Moscow to enter peace talks with Ukraine, according to sources.
With EU officials in Washington to discuss Russia sanctions, European Commission chief Ursula von der Leyen said on Wednesday the bloc was considering a faster phase-out of Russian fossil fuels as part of new measures aimed at Moscow.
The 27-member bloc is very unlikely to impose crippling tariffs on India or China, EU sources said.
Traders expect the Federal Reserve will cut US interest rates at its Sep 16-17 meeting, which could boost economic activity and demand for oil.
Strong global economic growth in the next few years will increase demand for oil, US Energy Secretary Chris Wright, said, cautioning that US oil production may plateau for a little while.
US crude stocks, petrol and distillate inventories rose last week, the Energy Information Administration said, a bearish sign for the near-term supply outlook. Crude inventories increased by 3.9 million barrels in the week to Sep 5, the EIA said. Analysts polled by Reuters had expected a draw of 1 million barrels.
US petrol stocks rose by 1.5 million barrels, compared with analysts’ estimates for a draw of 200,000 barrels. Distillate stockpiles, which include diesel and heating oil, rose by 4.7 million barrels, versus expectations for a rise of 35,000 barrels.
“A very bearish report. The big headline is that crude build ... and then on top of that we had a big drop in petrol, so now we are waiting to see how much petrol demand will fall off a cliff after the US summer driving season, and it looks like it will be substantial,” said John Kilduff, partner with Again Capital.
“Given the economic data points lately showing an indicated slowdown, especially in the labour market, this weak petrol demand and pattern of low exports could be other indicators of a slowing economy in the US and potential globally,” Kilduff added.
On Tuesday, the EIA cautioned that global crude prices will be under significant pressure in coming months due to output increases by Opec+, the Organization of the Petroleum Exporting Countries and its allies including Russia. REUTERS
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