The oil market was trading at a six-week high as geopolitical issues continued to dominate the headlines and a tropical storm threatened oil installations in the Gulf of Mexico.
In Friday trading, Brent crude was priced around US$67 with WTI above US$60 a barrel.
American oil producers and shippers will be carefully watching the weather as the hurricane season is underway. More than a million barrels of oil are off the market as tropical storm Barry makes its way around the Southern coast.
US crude inventories falling
US crude inventories have been falling in recent weeks, down an additional 9.5 million barrels last week, according to the Energy Information Administration.
The captured Iranian oil tanker accused of breaking international sanctions, remains in the hands of British Marines in waters off the coast of Gibraltar. Iran insists on its return calling the situation illegal and still threatening to seize a British owned ship in retaliation.
The Royal Navy intercepted a seizure attempt on a tanker by Iranian forces near the Strait of Hormuz mid-week and the UK has warned all tankers that the risk of attack is now "critical".
A second UK warship is on its way to the Gulf to assist in protecting ships in the region. Shipping insurance costs are rocketing as the threat increases and tanker owners are being advised to take extra precautions.
Monthly reports from OPEC and the International Energy Agency warned of additional oil supply coming on the market.
Expecting lower demand
The IEA said they expect lower demand on OPEC production with the world requiring less than 30 million barrels of oil in 2020. Oil supply in 2019 had exceeded demand and the IEA sees this situation continuing despite OPEC action to keep barrels off the market.
The head of oil markets division for the IEA, Neil Atkinson told CNBC that considerable oversupply is due to “big growth from the United States and some other countries,” adding that “re-balancing is still some way off”.
News like this will encourage the greater OPEC alliance to remain committed to keeping 1.2 million barrels of oil off the market.
Only last week they renewed this commitment for an additional nine months until March 2020. OPEC’s monthly oil market report also sees slower demand for its member’s crude, agreeing with the IEA that demand will be less than 30 million barrels a day. OPEC acknowledges that “US tight crude is anticipated to grow,” but sees oil demand remaining the same for the year ahead, despite a softening in major markets like the US and China.
China’s economic activity slowed in June, according to data from the Chinese customs administration.
A report from Capital Economics said the trade data “painted a fairly downbeat picture of its demand for commodities.”
Total imports to China contracted by more than 7 percent year on year. China’s exports are down by 1.3 in June percent due to higher tariffs from the US. Over the first half of the year, exports are down more than 8 percent.
While there may be a temporary truce in the trade war with the US, this softening of the economy is a concern for oil and energy demand.
Oil producers will be closely watching the geopolitical tension in the Middle East in the coming weeks. It’s in no-one’s interest to see any escalation by the Iranians and Britain will certainly not want to be the key player in America’s ongoing quarrel with Iran.