Oil prices are mixed as US fuel markets tighten while trade dispute weighs on Brent

Singapore — Oil prices were mixed on Tuesday, with US fuel markets seen to be tightening while the China-US trade dispute dragged on international crude contracts.

US West Texas Intermediate (WTI) crude futures for September delivery were up 27c, or 0.4%, at 3.06am GMT, at $66.70 a barrel. The contract expires on Tuesday.

The more active October futures were up 7c, or 0.1%, to $65.49 a barrel.

Traders said US markets were lifted by a tightening outlook for fuel markets in the coming months.

Inventories in the US for refined products such as diesel and heating oil for this time of year are at their lowest in four years.

This is occurring just ahead of the peak demand period for these fuels, with diesel needed for tractors to harvest crops and the arrival of colder weather during the Northern Hemisphere autumn raising consumption of heating oil.

Outside the US, Brent crude oil futures were slightly weaker, trading at $72.18 a barrel, down 3c from their last close.

This followed the US offering on Monday 11-million barrels of crude from its Strategic Petroleum Reserve (SPR) for delivery from October 1 to November 30.

The released oil could offset expected supply shortfalls from US sanctions against Iran, which will target its oil industry from November.

Because of the sanctions, French bank BNP Paribas said it expected oil production from oil cartel Opec, of which Iran is a member, to fall from an average of 32.1-million barrels a day in 2018 to 31.7-million barrels a day in 2019.

Still, traders said overall market sentiment was cautious because of concerns over the demand outlook amid the trade dispute between the US and China.

A Chinese trade delegation is due in Washington this week to resolve the dispute, but US President Donald Trump told Reuters in an interview on Monday he does not expect much progress, and that resolving the trade dispute with China will “take time”.

Ample oil, despite Iran

The effect of the sanctions on Iran is not yet clear.

China has indicated that it will continue to buy Iranian oil despite the US sanctions.

The Iran supply cut may also be more than compensated for by production increases outside Opec.

BNP Paribas said non-Opec output was likely to grow by 2-million barrels a day in 2018 and by 1.9-million barrels a day next year.

“Depending on when pipeline infrastructure constraints are lifted in the US, non-Opec supply growth by the end of 2019 may prove higher than currently assumed,” the bank said.

The search for new oil has increased globally in the past two years, with the worldwide rig count rising from 1,013 at the end of July 2016 to 1,664 in August 2018, according to energy services firm Baker Hughes.

The biggest increase was in North America, where the rig count shot up from 491 to 1,057 in the past two years.

How prices develop will also depend on demand.

“We see global oil demand growing by 1.4-million barrels a day in both 2018 and 2019,” BNP Paribas said, implying that global markets are likely to remain sufficiently supplied.

Reuters