Oil rises on West Asia tensions, weak demand outlook caps gains

Reuters SINGAPORE | Updated on July 23, 2019 Published on July 23, 2019

Oil prices edged up on Tuesday on concerns about possible supply disruptions in West Asia, but a weaker demand outlook kept a lid on gains, helped by a vow by the International Energy Agency (IEA) to keep global markets adequately supplied.

Brent crude futures climbed 29 cents, or 0.5 per cent, to $63.55 a barrel by 0643 GMT. The international benchmark rose more than 1 per cent in the previous session, following Iran's seizure of a British tanker last week that stoked fears of supply disruptions from the energy-rich Gulf.

West Texas Intermediate (WTI) crude futures were up 20 cents, or 0.4 per cent at $56.42 per barrel. “Downward revisions on global oil demand, along with rising challenges in the macro-economic environment, have capped bullish gains for oil prices,” said Benjamin Lu Jiaxuan, commodities analyst at Singapore-based Phillip Futures.

Meanwhile, the IEA said it was closely monitoring developments in the Strait of Hormuz as relations between Iran and Britain remain tense.

“The IEA is ready to act quickly and decisively in the event of a disruption to ensure that global markets remain adequately supplied,” it said, adding that executive director Fatih Birol has been in talks with IEA members, associate governments and other nations.

The oil market is currently well supplied, with oil production exceeding demand in the first half of 2019, pushing up global stocks by 900,000 barrels per day, the IEA said in a statement.

That comes against the backdrop of the Organisation of the Petroleum Exporting Countries (OPEC) and some non-affiliated producers, including Russia, withholding supplies since the start of the year to prop up prices.

The potential for disruption in West Asia has come amid a more fundamental souring of market sentiment in recent days, with hedge funds, producers and traders all taking a more bearish tack in response to what they see as weakness in worldwide demand.

“I'm struggling to identify a clear direction at the moment but, I'm becoming increasingly bearish due to non-OPEC supply and softening global demand,” said Harrison Fleming, research analyst at Frame Funds in Sydney.

“I don't see any resolution to West Asia tensions in the near term... I do see this theme providing more of an excuse for oil to remain trading in a range for the next month or two,” Fleming said.

Published on July 23, 2019
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