Oil prices reached their highest level in six weeks on Thursday as oil rigs in the Gulf of Mexico were evacuated before the storm, while an incident with a British tanker in the Middle East highlighted the existing tensions in the region.
Brent crude futures reversed early losses and rose 40 cents to $67.41 a barrel. Earlier in the session, oil hit its highest level since May 30 at $67.65, after closing Wednesday up 4.4%.
WTI crude futures rose 33 cents to $60.76 a barrel, soon after hiting their highest levels since May 23 at $60.94. Oil gained 4.5% in the previous session.
Just a day after Iran warned the United Kingdom that it would face “consequences” for the seizure of an Iranian oil tanker, three Iranian ships tried to block the passage of a British ship run by BP across the Strait of Hormuz, the British government said. They then withdrew, after receiving warnings from a British warship.
“What happened was partially expected. We pointed out last week that Iran was likely to do something of the sort,” oil market analysts said. “They might have created a little bit of disturbance, but nothing came out of it. For now, we are in the process of intimidation and psychological warfare … To have a strong price reaction you need something to really happen.”
Oil prices were also supported by a drop in US stocks. The US Energy Information Administration (EIA) said US crude inventories fell 9.5 million barrels in the week ending July 5, more than 3.1 million barrels that was predicted by analysts as refinery production increased. US oil producers on Wednesday cut about a third of their production in the Gulf of Mexico ahead of the storm, which what might be one of the first severe storms the Atlantic hurricane season.
Fifteen production platforms and four platforms have been evacuated in the north-central Gulf of Mexico, according to a US regulatory agency, where oil companies have moved the workers to safety before a storm which is expected to become a hurricane by Friday. “There is nothing like an early start to the hurricane season to support oil prices, but looking under the hood of the EIA data, it paints an even rosier picture for US oil markets,”.
US production rose again after dropping a little from their record levels, according to the US intelligence agency. Production rose last week to 12.3 million barrels per day. Rising levels of US shale production, declining global economic momentum and the existing trade uncertainties will limit the bullish gains of crude oil futures.
The Organization of the Petroleum Exporting Countries (OPEC) said on Thursday that global demand for crude would fall next year as more competitors would begin to pump more, signaling a return to surplus despite the OPEC-led agreement to cut supplies. OPEC released its first forecasts for 2020 in one of their reports, stating that they expect the world will need 29.27 million barrels of crude oil per day from its 14 members next year, down 1.34 million barrels per day from this year.
The decline in demand for OPEC crude highlights the continued boost that OPEC’s policy to support prices is giving the United States and other competitors. US President Donald Trump is likely to give more space to continue the sanctions imposed on OPEC members Iran and Venezuela.
OPEC also expected global oil demand to rise at the same pace this year and that the world economy would expand at the pace that we saw this year, despite slowing growth in the United States and China. “The 2020 forecast assumes that no further downside risks materialize, particularly that trade-related issues do not escalate further,” OPEC declared regarding their forecasts.
OPEC and its allies renewed last week the agreement to cut supply until March 2020, citing the need to avoid accumulation of stocks that could affect prices. OPEC also said its oil production in June fell by 68,000 bpd to 29.83 million bpd, higher than the forecast for 2020.