Oil prices were higher during Monday Asian trading session as traders showed concern about supply disruptions after Iran seized a British tanker last week. Also pressuring prices were reports out of Libya that its largest oil field has been shut down. As of 1:08 p.m. HK/SIN, Brent crude futures were up 1.30 percent to trade at $56.02 per barrel and U.S. WTI futures were up 0.70 percent, trading at $63.28 per barrel. The jump in prices came after a slower trading session on Friday which saw modest gains even as the news about the captured tanker rolled in. In fact, U.S. WTI slumped more than 7 percent last week and Brent saw losses over 6 percent, its worst week of losses since December 2018. Last week’s performance was prompted on the fundamental level by rising U.S. stockpiles and reduced global demand.
On Friday it was announced that Iran’s Revolutionary Guards seized a British tanker in the Gulf, a revenge move taken for the seizure of an Iranian tanker by Britain earlier in July. Britain claimed that the Iranian tanker was violating European law and carrying crude oil to Syria. Iran vehemently denied those claims. The tit-for-tat seizures raised the question as to whether additional actions would be taken in the Gulf that could potentially disrupt supply further.
Meanwhile, in Libya, the country’s National Oil Corporation announced that the El Sharara oilfield, the country’s largest producer, was shut down. The oil field produces approximately 290,000 barrels per day.
Reduced Demand – a Conflicting Story
Despite the higher prices on Monday, there are several indicators that oil prices may not be in a full upswing. According to reports from the International Energy Agency last week, there may be a good reason to cut price forecasts, largely due to the slowing global economy, and the slowdown of China’s economy in particular. Recent reports have shown negative trends lately, IEA’s director Fatih Birol told Reuters, commenting that the agency will cut its forecast to 1.1 million barrels per day, down from original forecasts of 1.5 million barrels per day.
Traders will continue to watch the brewing trade war between the U.S. and China to determine whether a truce will give way to increased demand. Likewise, traders will continue to watch the dance between the U.S., Britain, and Iran and to see whether continued tensions will play a role in oil price and production.