Crude oil prices surged Thursday, rebounding from a bruising prior session after reports that two oil tankers had been attacked in the Gulf of Oman, with fresh tensions in that region potentially posing a threat to global supplies. West Texas Intermediate crude for July delivery jumped $1.85, or 3.6%, to $52.98 a barrel, but has managed a session high thus far of $53.11 a barrel. Gains were in contrast to a 4% drop that took oil prices down to $51.14 on Wednesday, marking the lowest front-month contract finish since Jan. 14, according to Dow Jones Market Data.
Meanwhile The Organisation of Petroleum Exporting Countries (OPEC) says it has cut its forecast for global oil demand growth and warned of potential further cuts as international trade disputes continue to fester. OPEC said in its monthly report published on Thursday that world oil demand would rise by 1.14 million barrels per day (bpd) this year, 70,000 bpd less than previously expected.
“Throughout the first half of this year, ongoing global trade tensions have escalated,” OPEC said in the report.
It added that the potential for these disputes to affect global demand poses “significant downside risks”. August Brent crude jumped $2.36, or nearly 4%, to $62.30, closing in on a session high so far of $62.64 a barrel, reached earlier when reports of the tanker attacks surfaced. The prior session saw Brent tumble 3.7% to $59.97 a barrel, the lowest front-month finish since Jan. 28. Wednesday’s falls came after a report showing U.S. crude inventories climbed for a second week in a row. Simmering worries about energy demand on the back of growing U.S.-China trade tensions also pressured the commodity.
But geopolitical tensions jolted the price the other way on Thursday. The Associated Press and other media outlets said the U.S. Navy was assisting two oil tankers in the Gulf of Oman, near the Strait of Hormuz. One was reportedly adrift and on fire, and the Iranian media reportedly earlier that they had been targeted, without offering evidence. “We know that geopolitical tensions in the region are worsening and raise supply-side concerns in terms of short-term outages etc.—but with OPEC already curbing output and U.S. production at a record high the market is far less susceptible to a shock,” said Neil Wilson, chief market analyst for Markets.com, in a note to clients. Analysts at Commerzbank said the sharp rebound in prices may also be in response to Wednesday’s slump, “which in our opinion was not justified,” it told clients in a note. “While U.S. crude oil stocks did continue to rise, contrary to expectations, they did so to a lesser extent than the API had reported the evening before. What is more, the refineries processed more crude oil and the gasoline inventory build was much smaller than in the preceding weeks,” said the analysts.
However, threats to the region are taken seriously as it is a vital shipping route for oil production around the Persian Gulf. The region has been the site of other attacks. On May 14, Yemen’s Houthi rebels, who are fighting Saudi Arabia, claimed responsibility for armed-drone attacks that halted pumping at a key Saudi oil pipeline. A day ahead of that incident, the Saudis said two of its tankers had been damaged in a sabotage attack. The U.S. has been blaming Iran for those attacks.
Also Thursday, the Organisation of the Petroleum Exporting Countries on Thursday cut its forecast for growth in world oil demand this year to 1.14 million barrels a day, from a May estimate of 1.21 million barrels. In its monthly report, OPEC said the revision largely reflected sluggish demand data from developed countries that make up the Organisation for Economic Cooperation and Development.
The International Energy Agency will be released its own monthly oil report on Friday. That report will include forecasts for 2020. The market is awaiting a decision by OPEC and its allies on whether to extend their production-cut deal past the end of this month, when it expires. In other energy trading, natural gas for July delivery slipped 0.7% to $2.369 per million British thermal units. July gasoline rose 2% to $1.722 a gallon, while July heating oil rose 2.8% to $1.829 a gallon.
OPEC and its allies will meet in the coming weeks to decide whether to maintain supply curbs, with some having become alarmed by a steep slide in prices. U.S. President Donald Trump has pressed for action to lower prices. Observers see the cut as building a case for prolonged supply restraint over the rest of 2019. OPEC, Russia and other producers have, since Jan. 1, implemented a deal to cut output by 1.2 million bpd. They will meet over June 25 and June 26 or in early July to decide whether to extend the pact.
Despite the supply cut, oil has tumbled to $61 a barrel from April’s 2019 peak above $75, pressured by fears over the U.S.-China trade dispute and an economic slowdown.
Vienna-based OPEC also said its output fell in May as U.S. sanctions on Iran boosted the impact of the supply pact. “Production by all 14 OPEC members dropped by 236,000 bpd to 29.88 million bpd,” OPEC said. In addition to lowering its demand forecast, OPEC said that oil inventories in developed economies rose in April, suggesting a trend that could raise concern over the possible build up of an oil glut.