Oil falls as demand outlook clouds over

Singapore — Oil prices dipped on Monday as rising trade tension dented the outlook for fuel demand growth especially in Asia, although US sanctions against Iran still pointed towards tighter supply.

Front-month Brent crude oil futures were at $72.63 a barrel at 5.09am GMT, down 18c, or 0.25% from their last close.

US West Texas Intermediate (WTI) crude futures were at $67.63 a barrel, unchanged from their last settlement.

Signs of slowing economic growth and lower fuel demand increases, especially in Asia’s large emerging markets are weighing on the oil markets.

Singapore-based brokerage Phillip Futures said on Monday that “trade protectionism and escalating tensions between the world’s largest economies [the US and China] have cast a looming shadow on global oil demand growth in 2018”.

Hedge funds and other money managers reduced their bullish positions in US crude futures and options in the week ending on August 7, data from the US Commodity Futures Trading Commission showed on Friday.

Beyond the darkening economic outlook, Phillip Futures said hedge funds had reduced bullish bets because of “rising production levels from Opec and the US”.

US energy companies last week added the most oil rigs since May, adding 10 rigs to bring the total count to 869, according to the Baker Hughes energy services firm.

That was the highest level of drilling activity since March 2015.

Despite this cautious oil market sentiment, there are drivers that are keeping prices from falling further.

The US has started implementing new sanctions against Iran, which from November will also target the country’s petroleum sector.

Iran is the third-largest producer among the members of oil cartel Opec.

“With US sanctions on Iran back in place … maintaining global supply might be very challenging,” ANZ bank said on Monday, although it said that “the US is doing its bit to increase production”.

Reuters