Oil Steadies After Slump as Traders Still Wary on Supply Risks

Oil steadied after another sharp pullback as traders remained wary over whether supplies will be sufficient to cover a range of global disruptions.

Futures in New York traded near $68 a barrel, having tumbled 4.2 percent on Monday as Libya restored output at some fields and the U.S. signaled it may take a slightly softer approach with sanctions on Iranian exports. Iraq is shipping the most crude since 2016 and the U.S. is considering tapping emergency reserves. Still, with American inventories forecast to have dropped further from the lowest level since 2015, traders remain on edge.

“Given the uncertain and unpredictable political and economic backdrop, it is as easy to make a bearish case for oil as a bullish one,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London.

Oil has tumbled more than 8 percent from a 2014 high reached earlier this year on concern that an escalating trade spat between the U.S. and China will crimp global economic growth and reduce demand. Prices are also retreating as America and Saudi Arabia signal plans to keep markets well supplied while the U.S. begins sanctions against Iran after President Donald Trump quit a nuclear accord with the Islamic Republic.

West Texas Intermediate crude for August delivery traded at $68.05 a barrel on the New York Mercantile Exchange at 8:31 a.m. local time, after decreasing $2.95 to $68.06 on Monday. Total volume traded was about 16 percent below the 100-day average.

Brent for September settlement rose 11 cents to $71.95 a barrel on the London-based ICE Futures Europe Exchange, following Monday’s $3.49 drop. The global benchmark crude traded at a $4.83 premium to WTI for the same month.

In the U.S., nationwide crude stockpiles are forecast to have dropped by 3.05 million barrels last week, according to a Bloomberg survey of analysts. Inventories had declined by more than 12 million barrels in the previous week, the biggest net decrease since September 2016.

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Saudi Arabia is offering extra crude volumes on top of its contractual supplies to some buyers in Asia and the Trump administration is said to be considering tapping into America’s Strategic Petroleum Reserve to cool rising fuel prices.

“Production disruptions and large supply shifts driven by U.S. political decisions are the drivers of this new fundamental volatility,” Goldman Sachs Group Inc. analysts including Damien Courvalin said in a note Monday. “The uncertainty on the magnitude and timing of these shifts has muddied the near-term outlook for oil fundamentals.”

Other oil-market news:

Goldman says Brent will retest $80 a barrel, though that could be later this year rather than in the northern hemisphere summer as previously expected due to U.S. oil policies. Iraq exported 4.05 million barrels a day in the first two weeks of July, the most since November 2016, according to tanker-tracking and port agents data. Russia raised production to 11.22 million barrels a day in the first half of this month, 273,000 barrels a day more than the level it agreed on with OPEC in 2016, Interfax reported. U.S. Senator Chuck Grassley, along with a fellow Republican and two Democratic lawmakers, introduced legislation in the Senate that aims at allowing the government to bring lawsuits against OPEC members for antitrust violations. Output at major U.S. shale plays is estimated to rise by 143,000 barrels a day to 7.47 million barrels a day next month, according to the Energy Information Administration’s monthly Drilling Productivity Report.