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Oil Set for Quarterly Loss as Demand Fears Offset Saudi Strike


By Grant Smith

(Bloomberg) Oil headed for its weakest quarter since late last year as fears over the global economy and fuel demand overshadowed this month’s unprecedented attack on Saudi Arabia’s energy facilities.Brent futures have slumped about 8% since the end of June as a brief spike following the strikes on the Abqaiq processing facility and Khurais oil field — which knocked out 5% of world oil output — soon fizzled out. While that’s partly because the Saudis are restoring supply quicker than expected, it also reflects pressure on fuel demand from weak economic growth and the protracted U.S.-China trade war.

Oil has given up most of the gains following the attacks on Saudi Arabia

“The market has not suffered a supply disruption, as the material damage to the Abqaiq facility appears to have been limited and the kingdom continues to meet obligations to customers,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London. “The slowdown in global economic growth resulting from the trade war, and high U.S. crude exports, is also capping the market.”

Political tensions have abated somewhat since the Sept. 14 strike on Saudi Arabia as the powers involved take a cautious approach, Tchilinguirian said. The kingdom’s Crown Prince Mohammed Bin Salman warned that war between his country and Iran would bring a “total collapse of the global economy” and said he prefers non-military pressure to stymie Iranian ambitions. The U.S. and Saudi Arabia blame Iran for the attacks, and the Persian Gulf nation denies it.

Brent for November settlement, which expires Monday, fell $1.01 to $60.90 a barrel on the London-based ICE Futures Europe Exchange as of 1:38 p.m. local time. Prices are up 0.7% this month. The more-active December contract was down 80 cents at $60.24. The global benchmark crude traded at a premium of $5.84 to West Texas Intermediate.

WTI for November delivery lost 83 cents to $55.08 a barrel on the New York Mercantile Exchange. Prices are little changed this month, and down 5.8% for the quarter.

Yemen Cease-Fire

Saudi Arabia has agreed to a limited cease-fire in several areas of Yemen including the capital Sana’a, which is controlled by Iran-backed Houthi rebels, a Yemeni government official said last week, easing tensions in the region. Still, some hostilities continue after the Houthis, which claimed responsibility for the Saudi attacks, said they had captured soldiers from the kingdom during an operation near the border of the countries.

QuickTake explainer: Understanding the Conflicts Leading to Saudi Attacks

The oil market has also been driven by the prolonged clash between Washington and Beijing over trade, and the knock-on effects on economic growth. Their dispute has already almost halved oil-consumption growth, Citigroup Inc. said earlier this month.

The world’s two largest economies will head into another round of high-level trade talks following China’s week-long national holidays starting Oct. 1. Beijing said it would continue to open up its financial markets amid reports that the U.S. is considering restrictions on fund flows to China.

Other oil-market news:
  • The attacks on Saudi Arabia’s oil facilities have added impetus to Asian buyers’ efforts to diversify their import mix away from the Middle East. The main beneficiary may be the U.S.
  • Crude buyers are scrambling to find replacements for vessels owned by units of China’s COSCO Shipping Energy Transportation Co. after they were slapped with U.S. sanctions. Indian Oil Corp. and Nayara Energy Ltd. are set to pay at least 20% more than before the sanctions for two replacement ships.
  • Working oil rigs in the U.S. declined by six last week to 713, the lowest since May 2017, according to data released Friday by oilfield-services provider Baker Hughes.
  • Oil investors piled into short positions as the market shook off the disruption from attacks on Saudi Arabian oil facilities.


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