Oil Near $69 as U.S. Supply Estimated to Drop a Third Week

Oil traded near $69 a barrel as an industry report showed U.S. crude inventories declined last week, ahead of government data due later.

Futures in New York erased Wednesday’s losses reaching as high as $68.95 a barrel. The American Petroleum Institute was said to report U.S. crude stockpiles fell 1.17 million barrels last week, despite a 631,000-barrel build at the Cushing, Oklahoma, storage hub. Official data from the U.S. Energy Information Administration is due Thursday.

Crude prices have been caught in a tug of war between bulls and bears in recent weeks as speculation that U.S. sanctions on Iran’s exports will tighten global supplies, countering signs of rising inventories and pledges by other OPEC members to boost output. Amid fear that contagion will spread across emerging markets, concerns are growing that oil demand will weaken as a stronger dollar makes imports more expensive for developing economies.

“The biggest story out there is the continued pain that is being inflicted on emerging market bonds, stocks and not least currencies,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S. “On that basis, crude oil is seeing some selling pressure — not only from speculative traders who rushed back into long positions last week, but also the continued worry about global and not least emerging market demand growth going forward.”

West Texas Intermediate for October delivery traded at $68.82 a barrel on the New York Mercantile Exchange, up 10 cents, at 8:18 a.m. local time. The contract slumped $1.15 to $68.72 on Wednesday. Total volume traded was 28 percent below the 100-day average.

Brent for November settlement gained 22 cents to $77.49 a barrel on the ICE Futures Europe exchange, after losing 1.2 percent on Wednesday. The global benchmark crude traded at a $8.93 premium to WTI for the same month.

Countering the emerging-market issue is “the yet unknown impact on Iran’s ability to produce and export” amid looming U.S. sanctions, said Hansen. “These concerns are likely to keep the downside risk on Brent capped at $75.”

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JXTG Holdings Inc., Japan’s biggest refiner, and domestic rival Idemitsu Kosan Co. are both said to have skipped purchases of Iranian supplies loading in October. Bharat Petroleum Corp. is among Indian state-run refiners that haven’t booked any cargoes for the month either. The companies are waiting for word from their respective governments, which are negotiating over imports with U.S. officials. U.S. crude inventories at Cushing likely rose 600,000 barrels last week, according to a Bloomberg forecast before government data to be released Thursday. That would be the fourth straight increase. Fears of a crude crunch are taking precedence over concerns of a slowdown in global oil demand, according to Jefferies LLC. Pipeline companies are plowing forward with giant oil and gas conduits as bottlenecks show signs of tempering output in the Permian Basin, America’s hottest shale play.