Oil Rises Second Day on Saudi Supply Scare; Weekly Loss Holds

By Barani Krishnan

Investing.com - Saudi Arabia’s warning that it won’t tolerate another oil price crash has affected the market more than expected, with crude prices rebounding a second day in a row on Friday, even after the Paris-based International Energy Agency slashed its reading for global oil demand growth.

New York-traded West Texas Intermediate crude settled up $1.96, or 3.7%, at $54.50 per barrel.

London-traded Brent crude, the benchmark for oil outside of the U.S., rose $1.10, or 1.9%, to $58.48.

WTI has leapt nearly 7% in two days of trading, while Brent has recovered almost 4%.

Prior to that, oil prices were dragged to 7-month lows by data showing a surprise weekly jump in U.S. crude stockpiles and heightened trade war worries.

Despite Friday’s rebound, the U.S. crude benchmark ended the week about 2% lower, while its U.K. peer lost nearly 6%.

One reason for oil’s partial recovery is the warning by an unidentified Saudi official who told Bloomberg that the kingdom won’t simply stand by to watch the torrid selloff of the past week and was exploring all options to halt the plunge.

Further bolstering crude was data on Friday showing that U.S. drillers cut six oil rigs this week, bringing the total rig count down to 764, the lowest since February 2018. That is the most weekly declines in a row since March when drillers also cut rigs for six consecutive weeks.

Bloomberg reported that, as OPEC’s biggest producer, the Saudis plan to keep their own exports at below 7 million barrels per day from next month. In good times, the kingdom can produce up to 10.3 million bpd, and now certainly isn’t one of those times.

The IEA trimmed its estimates for global oil demand growth in 2019 by 100,000 barrels a day to 1.1 million a day, implying a growth rate of about 1.1%. The outlook for 2020 was lowered by 50,000 barrels a day to 1.3 million a day, suggesting demand growth of 1.3%.

To achieve lower exports, Riyadh’s state-run Saudi Arabian Oil Co., known as Aramco, will cut customer allocations across all regions by a total of 700,000 barrels a day in September.

For North American customers, the kingdom will send about 300,000 barrels bpd less than they nominated for oil scheduled to load in September. Reductions to European buyers will be larger and there will also be modest cuts to Asian buyers, although no details were available as yet.

The Paris-based IEA, meanwhile, reported demand growth at its lowest level since the financial crisis of 2008.

World consumption increased by just 520,000 barrels a day from January through May -- about half the rate seen the previous year and the slowest for the period since 2008, the agency said.

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But some analysts priced down the risk in the IEA’s numbers, saying the agency was regurgitating earlier forecasts of falling growth.

“The International Energy Agency, known for their major underestimations of global demand, are warning of another global demand slowdown,” said Phil Flynn, analyst at the Price Futures Group brokerage and a well-known oil bull.

“While there has been some slowing, oil demand is not that bad," Flynn said. "Economic data out of China on exports might be a sign that we may already be reversing the recent softness in the market. Now with OPEC cutting back more and global supply tightening, we are pricing in too much of a slowdown.”