Published: Thu, October 18, 2018
Finance | By Jaime Brady

Oil steadies after surprise draw in US crude stocks

Oil steadies after surprise draw in US crude stocks

A day after Saudi Arabia said it would retaliate to any possible US sanctions over the disappearance of a journalist, which led to a spurt in Brent crude prices, the world's largest oil exporter struck a conciliatory tone in India.

Brent crude prices were trading 80 cents a barrels higher at $81.23 by 11.57 GMT.

Over the past two weeks, hedge funds and other money managers have been trimming their combined net long position in the most-actively traded oil contracts, taking profits after oil prices hit four-year highs at the start of October.

USA crude stocks rose last week, while gasoline stocks decreased and distillate inventories fell, the Energy Information Administration said on Wednesday.

But analysts said it was hard to imagine Saudi Arabia taking action that would greatly affect world oil supply.

Analysts attribute the change previous year to the output cuts initiated by Saudi Arabia and the increased availability of heavy grades of crude from Iraq at a higher discount, which are more suited for use in Indian refinery complexes.

Oil had been rising this week on worries about Iranian sanctions and tensions between the United States and Saudi Arabia after the death of Saudi journalist Jamal Khashoggi. And we have seen sanctions on Iran.

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It's not yet clear to what extent, if any, China will curb shipments of Iranian crude due to USA sanctions.

Oil is a globally-priced commodity, subject to the outsized influence of Saudi Arabia, its fellow OPEC member countries and other OPEC+ petrostates like Russian Federation. Saudi Crown Prince Mohammed Bin Salman said that the kingdom and other OPEC producers are making up for lost supply from Iran.

"The market is reacting to the unexpected decline as inventories tend to rise at this time of year", said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo.

Tom Kloza, longtime oil analyst at the Oil Information Service said the possible effect of the controversy on oil prices is on "everyone's radar" right now.

The breakdown of the talks is equivalent to the Saudis and Kuwaitis agreeing to cut production by 500,000 barrels a day, said Phil Flynn, senior market analyst at Price Futures Group.

Distillate stockpiles, which include diesel and heating oil, fell by 827,000 barrels, versus expectations for a 1.3 million-barrel drop, the EIA data showed.

His comments come amid signs that Iran is scrambling to try to maintain its oil exports, which are declining so fast that the International Monetary Fund last week estimated they had already driven Iran's oil-fueled economy into recession.

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