Oil futures climbed for the week as tensions persist in the Middle East, but prices posted only a small gain for the session on Friday, with a Gulf of Mexico storm expected to cause only a brief reduction in the region’s oil and natural-gas production.
Futures prices “have not reacted much because this storm is not expected to be intense enough to cause significant damage and the lost output has been priced in,” said Marshall Steeves, energy markets analyst at IHS Markit.
Oil’s overall gains for the week have been fueled in part by falling U.S. inventories which have come down over the past four weeks. The market has managed to climb even though investors pondered 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.
August West Texas Intermediate crude CLQ19, +0.32% tacked on a penny to settle at $60.21 a barrel on the New York Mercantile Exchange—ending the week 4.7% higher. 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 closed out the week above $60 “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.”
International benchmark September Brent BRNU19, +0.42% rose 20 cents, or 0.3%, at $66.72 a barrel on ICE Futures Europe. Brent gained 3.9% for the week saw its highest levels since May.
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.
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.
Oil drilling activity in the U.S., however, has fallen in recent weeks. Baker Hughes BHGE, -0.91% on Friday reported that the number of active domestic oil drilling rigs fell by 4 to 784 this week, marking a second straight weekly decline.
Meanwhile, 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 was expected to make landfall over the central Louisiana cost on Saturday, according to the National Hurricane Center.
As of Friday, a total of nearly 59% of oil production in the Gulf of Mexico and almost 49% 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 settled at $1.977 a gallon, down 1.3 cents, or 0.6% for the session, for a weekly rise of 2.5%, while August heating oil US:HON19 added less than a half cent, or nearly 0.1%, to $1.9801 a gallon, ending 3.9% higher for the week.
Rounding out energy trading, August natural gas US:NGN19 gained 3.7 cents, or 1.5%, to $2.453 per million British thermal units, with prices up roughly 1.4% from the week-ago finish.