Futures Movers: Oil moves up after 2-session decline, but worries over demand prospects persist

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Oil futures edged higher on Wednesday, looking to recoup some of the losses they suffered over the past two trading sessions, but worries over demand prospects remained, with prices holding onto a sizable week-to-date loss.

Overall weakness for oil “continues to stem from broader economic uneasiness as U.S.-China trade tensions linger and a critical Brexit deadline is fast approaching,” said Robbie Fraser, senior commodity analyst at Schneider Electric.

“Beyond representing potential sources of future demand risk, those headwinds have already been connected to much weaker demand growth in 2019,” he said in a daily note. The International Energy Agency, Energy Information Administration, and Organization of the Petroleum Exporting Countries “have all consistently revised year-on-year demand expectations lower in recent quarters.”

West Texas Intermediate crude for November delivery CLX19, +1.00%  was up 20 cents, or 0.4%, to $53.01 a barrel on the New York Mercantile Exchange, putting the U.S. benchmark on track to end a two-day skid. It trades nearly 2% lower for the week so far. The global benchmark, December Brent crude BRNZ19, +0.85%, added 23 cents, or 0.4%, at $58.97 a barrel on ICE Futures Europe, trading around 2.6% lower week to date.

Analysts said concerns remain over the global economic outlook and the implications for oil demand after the International Monetary Fund on Tuesday cut its forecast for global economic growth this year to 3%, the slowest pace since 2008.

Weekly U.S. petroleum supply data is delayed by a day this week because of Monday’s Columbus Day federal holiday. The American Petroleum Institute will release its report Wednesday, with official data from the EIA due out Thursday, after the EIA’s weekly natural-gas supply figures. The EIA has reported weekly increases in crude stockpiles for four weeks in a row.

The EIA data are expected to show crude inventories up by 4 million barrels last week, according to analysts polled by S&P Global Platts. They also forecast supply declines of nearly 1.8 million barrels for gasoline and 2.6 million barrels for distillates.

Meanwhile, the EIA on Tuesday also forecast U.S. shale oil production to rise 58,000 barrels a day in November to a record 8.971 million barrels a day.

The Permian Basin accounts for the bulk of the increase, with the region, at 4.61 million barrels a day, making up more than half of the total U.S. shale oil supply, noted Carsten Fritsch, analyst at Commerzbank, in a note.

“Excluding the U.S., only four countries in the world produce more (than the Permian) — namely Russia, Saudi Arabia, Canada and China. Thirty-five percent of all the crude oil produced in the U.S. already comes from the Permian Basin, and just shy of 70% of the crude oil produced in the U.S. is shale oil,” he said.

“There is no shortage of light low-sulphur oil, in other words, which is one reason why the WTI forward curve is back in contango at the front end,” Fritsch wrote, with November futures trading below December, and December trading below January.

On a global level, “the monumental surge in tanker rates following U.S. sanctions on Chinese shippers continues to complicate oil flows, with reports indicating a number of Asian refiners declining to make spot purchases due to the vessel rate,” said Fraser.

“That could pull more products out of storage until costs approach more normal levels, providing some temporary support to refined product prices and leaving some crude cargoes stranded or diverted into storage themselves,” he said.

Freight rates to ship U.S. crude to ease fell from a record on Tuesday, but costs had risen to as high as $11 a barrel in the past two weeks, Reuters reported, citing market sources,

In other energy trade, November gasoline RBX19, +0.45%  fell 0.2% to $1.6108, while November heating oil HOX19, +1.46%  rose 1.3% to $1.934 a gallon. November natural-gas futures NGX19, +0.68%  were up 0.9% at $2.361 per million British thermal units.

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