Oil futures settled lower on Thursday, shrugging off earlier gains even as a tropical storm in the Gulf of Mexico cut oil output in the region by more than half.
The move follows a report Thursday, in which the Organization of the Petroleum Exporting Countries forecast lower demand for its crude oil next year as rivals, including the U.S., lift production.
“There is a lot of uncertainty in the oil space as of recent,” Scott Gecas, chief market strategist at Walsh Trading, told MarketWatch.
“For the bull camp, we have the storm that is coming through the Gulf as well as tensions heating up in the Mideast. Any escalation will affect supply immediately,” he said. “For the bear camp, we have U.S. production running full steam ahead.”
Higher production from OPEC’s rivals are “increasing the chance of a supply surplus,” said Gecas. “The oil trade will be tricky for traders in the coming months based on fundamentals.”
On Thursday, August West Texas Intermediate crude CLQ19, -0.13% fell by 23 cents, or 0.4%, to settle at $60.20 a barrel on the New York Mercantile Exchange after trading as high as $60.94. It wrapped Wednesday at $60.43, the highest settlement for front-month WTI prices since May 22.
International benchmark September Brent BRNU19, +0.24% lost 49 cents, or 0.7%, at $66.52 a barrel on ICE Futures Europe, falling back after rallying by 4.4% Wednesday to $67.01—the highest settlement since May 29.
A storm in the Gulf of Mexico has intensified to become Tropical Storm Barry, according to the National Hurricane Center. Barry could become a hurricane late Friday or early Saturday.
On Thursday, a total of roughly 53% of oil production in the Gulf of Mexico and nearly 45% of natural-gas production were shut down as a precaution, according to the Bureau of Safety and Environmental Enforcement.
Crude oil futures rallied Wednesday to settle at their highest since May, with U.S. prices up a fifth straight session. Prices got a boost from data showing a fourth consecutive weekly decline in U.S. crude inventories, persistent Iran tensions, and dovish comments from Federal Reserve Chairman Jerome Powell that has pressured the dollar so far this week, impacting dollar-priced commodities. A U.S. interest-rate decision looms at month’s end.
A British oil tanker was threatened by armed Iranian boats in the Persian Gulf on Wednesday, according to CNN.
“The incident does not bode well for nuclear talks between the Iran and the Europe and likely provides more ammunition for [U.S.] President [Donald] Trump to deliver more sanctions on Iran and seek U.K. support in abandoning the 2015 nuclear deal,” said Edward Moya, senior market analyst at Oanda.
As for the demand picture, OPEC said in a Thursday report it expects world demand for its crude will decline next year, to an average 29.3 million barrels per day, down by around 1.3 mb/d from 2019.
The report shows that “production outside the group, particularly from the U.S., is still overwhelming for OPEC,” said Barani Krishnan, senior commodities analyst at Investing.com.
The Energy Information Administration on Wednesday reported that U.S. crude supplies declined by 9.5 million barrels for the week ended July 5. That marked a fourth straight weekly decline.
The EIA data also showed that gasoline inventories were also down by 1.5 million barrels, while distillate stockpiles climbed by 3.7 million barrels last week. IHS Markit had shown expectations for a supply decline of 400,000 barrels for gasoline and an increase of 1.5 million barrels for distillates.
On Nymex, August gasoline US:RBN19 fell 1.6 cents, or 0.8%, to $1.9895 a gallon, while August heating oil US:HON19 shed 1.2 cents, or 0.6%, to $1.9786 a gallon.
Rounding out energy trading, August natural gas US:NGN19 shed 2.8 cents, or 1.2%, to $2.444 per million British thermal units.
Domestic supplies of natural gas rose by 81 billion cubic feet for the week ended July 5, the EIA reported Thursday. The data were expected to show a build of 72 billion cubic feet, on average, according to analysts surveyed by The Wall Street Journal.