Oil Edge Higher in Thursday Trade

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange (ICE) edged higher in early trade, pulling back from overnight highs following Wednesday's sell-off, as returning Libyan oil exports counter growing concern over the effect U.S. sanctions on Iran will have on crude availability.

The International Energy Agency (IEA) said in their monthly Oil Market Report released Thursday that Iranian crude exports declined by 230,000 barrels per day (bpd) in June from May, "as European purchases dropped by nearly 50%."

U.S. officials in June toured countries that buy Iranian crude, warning that they would need to zero out those sales by Nov. 4 or face financial punishment. U.S. Secretary of State Mike Pompeo this week said the U.S. would consider a handful of waivers, echoing comments made last month by the State Department.

"The clearly expressed determination of the United States to reduce Iran's exports by as much as possible suggests that shipments could be reduced by significantly more than the 1.2 mbd seen in the previous round of sanctions," IEA said.

IEA notes most of Iran's crude oil is imported by Asian countries, with China and India each receiving about 600,000 bpd recently.

"When you also consider that both China and India are exposed to Venezuela, importing respectively 250 kb/d and 325 kb/d, it is clear that the world's second and third biggest oil consumers could face major challenges in sourcing alternative compatible barrels."

Reuters reported India's U.S. crude oil imports hit a record June high, doubling against 2017 levels. Energy Information Administration data for June shows 228,000 bpd of U.S. exports flowed to India, up from the previous export record of 98,000 bpd in September 2017. And while EIA reported weekly U.S. exports down for the week ended July 6 to 2.2072 million bpd from 2.336 million bpd, four-week average exports were 2.434 million bpd versus 683,000 bpd in 2017.

Also lending support Thursday morning, IEA revised lower by about 100,000 bpd its expectations for oil supply from producers not part of the Organization of the Petroleum Exporting Countries (OPEC) for year-on-year growth of 1.97 million bpd, now seeing non-OPEC supply at 60.2 million bpd this year.

Domestically, EIA on Wednesday reported U.S. commercial crude inventories declined 12.6 million bbl to 405.2 million bbl. Analysts said the decline was the result of a sizable reduction in crude imports from 9.055 million bpd in the prior weekly report to 7.431 million bpd for the week ended July 6, negating the bullishness.

Analysts said this morning the current U.S. supply situation and ongoing uncertainty regarding trade disputes with China could keep pressure on oil prices short term.

"Overall we remain more bullish than not given the supply situation regarding inventories and trade war talk seen yesterday," said William Wilson, a commodities broker with Washington, D.C.-based Powerhouse. "If that does not come to pass, the market may trend further higher."

Near 9 a.m. ET, the NYMEX August WTI futures contract was up 52 cents barrel (bbl) to $71.24, while the September contract rose 60 cents to $69.46 bbl.

ICE September Brent, was up 83 cents bbl to $74.23, while the October contract gained 85 cents to $74.18 bbl.

NYMEX August RBOB contracts were 2.15 cents gallon higher at $2.0829 gallon, while September RBOB was 1.89 cents up at $2.0565 gallon, while the August ULSD contract rose 1.51 cents gallon to $2.1159 gallon.

Brian Whary can be reached at Brian.Whary@dtn.com