Oil falls 2% on rising supply, concern about trade tensions

Oil at five-week low as supply worries compound trade war threat

Oil prices declined toward lows not seen since late June yesterday after official data showed an unexpected increase in the United States (U.S.) inventories of crude oil that pushed stockpiles back toward the five-year average. Iranian officials have warned the country would not easily yield to a renewed USA campaign to strangle Iran's vital oil exports.

Brent crude futures LCOc1 were up 16 cents, or 0.2 percent, at $72.55 a barrel by 0503 GMT, after dropping 2.5 percent on Wednesday.

Crude fell to the lowest in more than five weeks as a surprise rise in US crude inventories and increases in production from OPEC and Russian Federation has investors anxious that global supply levels are on the upswing.

Analysts said widening of positions by participants amid pick up in spot demand against tight stocks position on restricted supplies from overseas markets mainly kept crude palm oil prices higher at futures trade.

Saudi Arabia's production increased by 230,000 barrels a day in July to 10.65 million barrels per day.

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USA crude futures slumped last month by the most in two years, and traded just below $68 a barrel yesterday on the New York Mercantile Exchange.

US crude oil exports to China dropped by roughly 42% in July as the appetite for light sweet USA crude declines in the Asian giant ahead of the start of 25% tariffs on USA oil imports, Kallanish Energy learns.

The weekly estimates for May all point to more than 10.7 million bpd of crude oil production, but the more accurate-albeit lagged-data, based on survey of producers, shows that USA oil output had trailed projections by around 300,000 bpd.

Tensions between the USA and Iran are also supporting the market, Barratt said. "A lot of this is the risk premium priced in for Iran and when do we start seeing an impact on supply there", Patterson said.

On Monday, August 6, the first set of USA sanctions on Iran will snap back, so we will be probably looking at tougher actions over August and September, Croft said.

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"A clear definition around the macros is what the market is looking for and until we get that, it is likely to be volatile in the range", said Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney.

Oil prices are also feeling the effects of tensions over global trade, which could cause economic growth to slow.

The kingdom has been under acute pressure from President Donald Trump to open the taps as he chokes off exports from Saudi's political rival, Iran.

US crude oil exports averaged 1.31 million barrels per day last week, down by 1.37 million barrels per day from the previous week. Senior Iranian officials have warned the country would not easily yield to a renewed USA campaign to strangle Iran's vital oil exports.

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