Futures Movers: Oil prices rise, but face sharp losses for the week with Libyan output expected to rise

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Markets/commodities reporter

Oil prices climbed on Friday, but remained on track to post sharp losses for the week, as traders weighed concerns over resurgent Libyan supply and global trade disputes against indications of tighter crude supply and shrinking spare output capacity.

August West Texas Intermediate crude CLQ8, +0.78% the U.S. benchmark, tacked on 69 cents, or 1%, to $71.02 a barrel. The contract settled at $70.33 a barrel on the New York Mercantile Exchange Thursday—the lowest since June 25. Prices also briefly hit lows Thursday under $70 a barrel for the first time in over two weeks. It was poised for a weekly loss of about 4.1%.

September Brent crude LCOU8, +1.21% the international benchmark, added 94 cents, or 1.3%, to $75.41 a barrel on the ICE Futures Europe exchange. Its closing low of the week, $73.40 on Wednesday, was the lowest settlement since June 21. Brent was on course to close out the week 3% lower.

Prices for Brent had dropped by 6.9%, or more than $5 a barrel, on Wednesday alone, “as trade concerns, returning Libyan supply, and a potentially softer U.S. stance on Iranian oil sanctions all combined to chip away at the market’s overall upside risk,” said Robbie Fraser, commodity analyst at Schneider Electric.

Read: The 7 reasons behind U.S. oil’s sharpest daily point drop in almost 3 years

“Nonetheless, risk remains fairly elevated looking ahead, with the market likely to confront unusually low levels of spare production capacity after some initial production gains by Saudi Arabia and Russia,” said Fraser in a daily note.

This week, Libya’s state-run National Oil Corp. cleared the way for a potential 700,000 barrels of oil a day flowing back into the global market.

Market participants have been concerned by further trade tensions between China and the U.S. Also, Washington raised the possibility that allies could buy Iranian crude despite the reintroduction of sanctions, which would bring more oil into the market.

Such concerns outweighed a report from the Energy Information Administration, which said weekly U.S. crude supplies dropped by 12.6 million barrels in the week ended July 6 and stand at a bout 4% below the five-year average for this time of year. A report from the International Energy Agency on Thursday suggested that global spare production capacity could be pushed to its limit.

“Just a week ago, such a remark would probably have sparked a pronounced price rise,” Commerzbank analysts said in a note.

Some analysts point out that any extra Libyan supply could be mitigated by ongoing outages in other countries and an expected eventual sharp drop in Iranian oil exports following the reintroduction of U.S. sanctions.

That said, fresh figures out of China revealed the lowest crude imports into the country since December, according to ING strategists. China was the second-largest importer of U.S. crude in the first quarter of 2018, according to the U.S. Energy Information Administration, but has yet to imposed tariffs on U.S. crude.

Looking ahead to when President Donald Trump meeting with Russian President Trump meets with Vladimir Putin on Monday, “one topic of discussion will be oil prices and how much and how fast Russian oil can be brought back online,” said Tariq Zahir, managing member at Tyche Capital Advisors.

The Saudis pumping more oil along with Russia, and possible exemptions on U.S. sanctions on Iranian oil leading to less oil off the markets later in the year “could halt the recent rise we have seen in spot prices,” said Zahir. And “if Libya stays online along with OPEC and non OPEC countries producing more supply, we could see a more balanced market where prices should stabilize.”

U.S. data on the number of active oil rigs, which offer a hint on potential production, will be released by Baker Hughes BHGE, +0.24%  later Friday. Last week, the oil-rig count rose for the first time in three weeks.

Rounding out action on Nymex, August gasoline RBQ8, +1.55% rose 1.3% to $2.099 a gallon, trading about 0.5% lower for the week. August heating oil HOQ8, +0.67%  added 0.4% to $2.132 a gallon, but set for a weekly loss of around 1.7%.

August natural gas NGQ18, -1.11%  fell by 1.1% to $2.767 per million British thermal units, down about 3.2% for the week. The EIA Thursday reported that domestic supplies of natural gas rose by 51 billion cubic feet for the week ended July 6.

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