Oil mixed on reports of increased Saudi output and escalating trade conflicts

New York — Oil was mixed on Tuesday, pressured by reports of increased Saudi Arabia production and escalating trade conflicts, but receiving support from production losses in Canada and Libya.

Brent crude lost 33c at $74.40 a barrel by 2.52pm GMT. US light crude gained 20c at $68.28.

Prices, which had been positive earlier in the session, fell following a report from Bloomberg, citing anonymous sources, that Saudi production would reach a record 10.8-million barrels per day (bpd) in July.

“There was a headline out that the Saudis are producing at levels that are largely perceived to be above and beyond … that has been the death blow in the past couple minutes,” said Bob Yawger, director of energy futures at Mizuho in New York. “It’s definitely a big number, bigger than expected. But keep in mind that any big Saudi production numbers have to take into consideration that cooling demand in Saudi is going to max out in this month, next month, and the month after that.”

Meanwhile, Eastern Libyan commander Khalifa Haftar’s forces have given control of oil ports to a separate National Oil Corporation (NOC) based in the country’s east. The official state-owned oil company from the capital Tripoli will no longer be allowed to handle that oil, in a move the Tripoli government said would deepen division.

The output losses follow a move by oil cartel Opec and other oil producers last week to increase supply by about 1-million bpd. Prices have thus far reacted modestly to the prospect of higher Opec production, partly because supply has tightened since 2017, and partly because it is not clear exactly how much extra oil will come on to the market, or when.

Production problems at one of Canada’s largest oil sands facilities helped drive front-month US crude to its highest premium above second-month futures since 2014.

Many analysts think markets will stay tight. Bank of America Merrill Lynch said Brent could rise to $90 a barrel by the second quarter of 2019. But the bank said the effects of the global trade dispute between the US and other major economies, including the EU and China, were gradually taking effect.

The escalating trade fight has already led to sharp sell-offs in stock markets, especially in Asia. Bank of America Merrill Lynch said: “We estimate a demand drop of 44,000 bpd for every 1% drop in global trade.”

Reuters