Oil rebounds as supply crunch fears counter trade tariff threats

Oil rebounded from the biggest weekly loss in two months as speculation of a crude supply shortage took precedence over escalating trade tensions between the world’s two biggest economies.

Futures gained as much as 1.1 percent in New York after last week’s 2.9 percent slide. South Korea didn’t receive any oil from Iran last month as the U.S. pressed its allies to curb trade with the OPEC member before sanctions take effect in November. Trouble flared in another OPEC producer as the headquarters of Libya’s National Oil Corp. was attacked by gunmen, according to a report by Sky Arabia.

Traders are weighing up the risk of supply shortages against the U.S.-China trade dispute which could curb economic growth and fuel demand. President Donald Trump ratcheted up the confrontation on Friday, saying that he’s ready to tax all imports from China at short notice. Oil is up 13 percent this year, but has dropped about 8 percent from a high in June.

“Dark clouds are gathering above global oil demand,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London. Nonetheless, “oil investors have not lost faith in further upside just yet due to the looming Iranian oil sanctions.”

Oil Rebound

West Texas Intermediate for October delivery rose as much as 77 cents to $68.52 a barrel and traded at $68.23 on the New York Mercantile Exchange as of 10:48 a.m. London time. Prices declined by $2.05 last week. Total volume traded was about 20 percent below the 100-day average.

Brent for November settlement climbed as much as $1.09 to $77.92 a barrel on the ICE Futures Europe exchange, after dropping 0.8 percent last week.

Brent’s premium to the U.S. marker is on course for the widest close in almost three months, with the global benchmark trading at a $9.42 premium to WTI. Hedge fund bets on rising Brent prices jumped to the highest in two months early last week, according to data released Friday.

South Korea became the first of Iran’s top-three oil customers to fulfill a hard-line U.S. demand that buyers cut imports to zero ahead of sanctions to be reinstated in November. The Asian nation didn’t import any crude from the OPEC member last month, compared with 194,000 barrels a day in July, tanker-tracking and shipping data compiled by Bloomberg show.

“The supply situation involving Iranian crude is likely to support prices for the time being,” Will Yun, a commodities analyst at Hyundai Futures Corp., said by phone from Seoul. “But it’s going to be a volatile market with a number of other factors weighing in, such as the U.S.-China trade conflict.

Some other key oil-market figures, news and events:

Fragile supply from countries such as Venezuela and Libya may tighten oil markets this year, and U.S. output will remain stuck with a pipeline bottleneck until new connectors come online next year, International Energy Agency Executive Director Fatih Birol said in a Bloomberg television interview last week.

Maxed-out pipelines in America’s busiest shale basin took a toll on drilling activity, with the number of working oil rigs falling by two last week, according to Baker Hughes.

The return of fuel subsidies in emerging markets including Brazil and Indonesia is supporting oil demand in the face of higher prices, according to IEA’s Birol.

World spare capacity, essentially held by OPEC and Russia, is likely to be lower than what the market has historically needed to avoid price volatility, industry consultant FGE said.

--With assistance from Tsuyoshi Inajima.

©2018 Bloomberg L.P.