Futures Movers: Iran tensions boost oil prices for the week, but Tropical Storm Barry provides little support

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Oil futures were modestly higher on Friday, adding to a nearly 5% weekly climb, as tensions persisted in the Middle East and investors kept tabs on a Gulf of Mexico storm that has so far led to the reduction of around half of the region’s oil and natural-gas production.

Gains have been fueled in part by falling U.S. inventories have come down over the past four weeks. The market is in an upswing even as investors ponder more signs that global supply will remain plentiful as the U.S. competes with OPEC, and against the backdrop of a less-than-robust demand scenario.

“WTI is on course to close the week out above $60 a barrel which could technically be quite a bullish signal,” said Craig Erlam, analyst with Oanda. “Numerous factors have contributed to oil’s rally since the start of last month: the restart of Sino-U.S. trade talks and OPEC+ deal being two important ones, but the recent inventory data has played a big role recently.”

August West Texas Intermediate crude CLQ19, +0.12% was up 16 cents, or 0.3%, at $60.36 a barrel on the New York Mercantile Exchange. It wrapped Wednesday at $60.43, the highest settlement for front-month WTI prices since May 22 as part of a string of gains that only paused on Thursday. WTI is headed for a roughly 4.9% gain for the week.

International benchmark September Brent BRNU19, +0.13% rose 16 cents, or 0.2%, at $66.68 a barrel on ICE Futures Europe. It, too, struck May highs this week en route to a roughly 3.8% gain for the week.

The energy market remained on alert as tensions persisted between Iran and the West. Tehran on Friday said that Britain was playing a “dangerous game” after last week’s seizure of an Iranian tanker on suspicion it was breaking European sanctions by taking oil to Syria, Reuters reported.

Don’t miss: Strait of Hormuz: Oil choke point in focus after U.K. navy quashes Iranian attempt to block tanker

Meanwhile, global demand for OPEC oil looks likely to fall to its lowest in over 16 years as the U.S.’s production share rises, the International Energy Agency said Friday. The IEA said demand from the Organization of the Petroleum Exporting Countries in the first quarter of 2020 will fall to 28 million barrels a day.

This means that despite efforts by the group and its allies to cut inventory, global oil supply climbed 300,000 barrels in June. OPEC+ nations recently extended their ongoing output reduction through March.

The IEA said despite the OPEC agreement, it’s not enough to change expectations for an oversupplied market. In the first half of 2019, oil supply exceed demand by roughly 900,000 barrels a day.

“This surplus adds to the huge stock builds seen in the second half of 2018 when oil production surged just as demand growth started to falter,” the group said. “Clearly, market tightness is not an issue for the time being and any re-balancing seems to have moved further into the future.”

OPEC said in its own report Thursday it expects world demand for its crude will decline next year, to an average 29.3 million barrels per day, down by around 1.3 mb/d from 2019.

The oil market has had a muted reaction so far to a Gulf of Mexico storm, initially getting a price boost believed linked to the short-term shutdown.

Tropical Storm Barry’s wind and rain were starting to hit parts of Louisiana early Friday. A hurricane warning was in effect along the Louisiana coast, and forecasters said the storm could make landfall as a hurricane by early Saturday.

As of Thursday, a total of roughly 53% of oil production in the Gulf of Mexico and nearly 45% of natural-gas production were shut down as a precaution, according to the Bureau of Safety and Environmental Enforcement.

Barry’s impact on oil production will depend on how long the lingers and how much damage it causes to the region’s energy infrastructure. It has the potential to cut Gulf of Mexico crude production by 140,000 to 230,000 barrels a day in July, according to S&P Global Platts Analytics.

On Nymex, August gasoline US:RBN19  was little changed at $1.9884 a gallon—looking at a weekly rise of 3.1%, while August heating oil US:HON19 added less than a half cent, or 0.1%, to $1.9812 a gallon, trading 4% higher for the week.

Rounding out energy trading, August natural gas US:NGN19  gained 3.3 cents, or 1.4%, to $2.449 per million British thermal units, with prices up roughly 1.2% from the week-ago finish.

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