Futures Movers: Oil slips on demand worries, but declines in U.S. supplies helps lead to weekly price gains

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Oil futures traded lower Friday, with pressure attributed in part to downbeat global demand forecasts from major organizations this week, but prices looked to end the week higher following declines in U.S. supplies.

“Future demand expectations have been dialed back this week” by the Organization of the Energy Information Administration, the Organization of the Petroleum Exporting Countries and the International Energy Agency, said Michael Hewson, chief market analyst at CMC Markets UK, in a market update.

In a report Thursday, the IEA said it expects 2020 global oil demand to contract by 8.1 million barrels a day year on year to 91.9 million barrels a day. OPEC’s monthly report issued Wednesday called for a fall of 9.1 million barrels a day in 2020 demand growth for global petroleum and liquid fuels to 90.6 million barrels per day, while a monthly report from EIA Tuesday forecast 2020 demand at 93.1 million barrels a day, down 8.1 million from 2019.

“The demand outlook remains a function of the virus and where it strikes next, while the impasse in Washington over a relief act creates uncertainty as to its magnitude and impact,” Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch.

West Texas Intermediate crude for September delivery CL.1, -0.35% CLU20, -0.35% on the New York Mercantile Exchange was down 22 cents, or 0.5%, at $42.02 a barrel, while the global benchmark, October Brent crude BRNV20, -0.28% was down 23 cents, or 0.5%, at $44.73 a barrel on ICE Futures Europe.

For the week, WTI trades 1.9% higher, while Brent has gained 0.7%, according to FactSet data.

“Global supplies are tightening with fewer Saudi loadings headed for the U.S. and production in the U.S. falling again,” said Steeves.

In a weekly report Wednesday, the EIA reported a weekly fall of 300,000 barrels per day to 10.7 million barrels per day in total U.S. oil production, along with a decline of 4.5 million barrels in crude inventories—the third weekly drop in a row.

“The crude stock draw in the latest week left inventory levels elevated even as production and imports fell,” Steeves said. “The crude oil stock draw in the latest week only slightly dented the surpluses, now 17% above a year ago and 15% above the five-year average.”

However, U.S. production has fallen below 11 million barrels per day, “now 13% below last year’s level but 5.5% above the five-year average,” he said.

Meanwhile, the OPEC+ production cuts remain in effect with a joint monitoring committee scheduled to meet next week, “where a rollover of current quotas is likely through September,” said Steeves.

Read:OPEC+ committee expected to take “wait-and-see” approach on output as oil prices reflect “new normal”

The Joint OPEC-Non-OPEC Ministerial Monitoring Committee, or JMMC, which monitors compliance with production cuts among OPEC+, is scheduled to hold a meeting via videoconference on Tuesday. At a meeting last month, OPEC+ allowed record production cuts of 9.7 million barrels per day to decrease to 7.7 million barrels per day starting in August.

Estimates show that OPEC+ production already increased in July.

Compliance among OPEC members and their allies with their production cut agreement fell to 96% in July, from 106% a month earlier, according to a survey from S&P Global Platts, with collective production among OPEC+ up by 1.1 million barrels per day.

In a report Friday, Macquarie said production from OPEC members increased by 1.2 million barrels in July as Saudi Arabia “reversed surplus cuts” and the United Arab Emirates raised supply by 270,000 barrels a day. That put member compliance with the cuts at 87%, versus more than 100% in June.

In other energy trading, September gasoline RBU20, +0.13% rose 0.2% to $1.2369 a gallon, while September heating oil HOU20, +0.26% was little changed at $1.2384 a gallon. Both contracts trade higher for the week.

September natural gas NGU20, +8.61% rallied by 8.4% to $2.365 per million British thermal units, with prices up around 6% for the week.

“We have seen strong [natural gas] demand this week, driven by increased cooling demand,” said Evangeline Cookson, research analyst and meteorologist at Marex Spectron. “These warmer temperatures have led spot demand for week 33 to end 8% above the five-year mean.”

Looking ahead, however, “our latest forecast is suggesting a low-pressure system will move eastward across Canada before stretching down the East Coast,” which will “bring cooler temperatures and reduce cooling demand,” she said in a note.

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