Market weighs news tied to China, Iran and Saudi Arabia
Oil futures finished lower Friday, as news reports tied to Iran sanctions, a cease-fire between Saudi Arabia and Yemen, and the U.S. considering limits on investor portfolio flows into China pressured prices, contributing to a loss of nearly 4% for the week.
Oil prices had been trading lower as The Wall Street Journal reported Friday that Saudi Arabia had moved to impose a partial cease-fire in war-torn Yemen, as Riyadh and Houthi militants try to bring an end to a four-year war that is become a flashpoint in a regional confrontation with Iran.
“Soon after, prices dropped sharply again on claims by Iranian President [Hassan] Rouhani that the U.S. has offered to lift all sanctions if Iran is willing to resume negotiations,” said Balint Balazs, commodity analyst at Schneider Electric. Reuters reported that Rouhani said the U.S. sent a message to European leaders that it was willing to lift all sanctions, but that he rejected talks with Washington while the sanctions remained in place.
However, Brian Hook, the U.S. special representative for Iran, was quoted as calling Iran’s claims “baseless.” Trump also tweeted: “Iran wanted me to lift the sanctions imposed on them in order to meet. I said, of course, NO!”
Prices for oil fell closer to session lows after Rouhani’s reported comments, then pared those losses after Trump’s denial.
However, prices fell back again, as Bloomberg reported that Trump administration officials were discussing ways to limit the flow of U.S. investors’ portfolio flows into China, potentially raising trade tensions between the two nations that would hurt energy demand.
Against that backdrop, West Texas Intermediate crude for November delivery CLX19, -0.41% lost 50 cents, or 0.9%, to settle at $55.91 a barrel on the New York Mercantile Exchange. For the week, prices for the front-month contract finished 3.8% lower, according to Dow Jones Market Data. November Brent crude BRNX19, +0.00%, the global benchmark, fell 83 cents, or 1.3%, to $61.91 a barrel on ICE Futures Europe, with the contract down 3.7% for the week.
“While there are reports of thawing of Saudi-Yemen tensions, [a] potential U.S. deal with Iran and potential for more U.S. restrictions on China, all of which support lower oil price, Baker Hughes…announced that the number of active U.S. oil and gas rigs declined to 860, which is lowest since April 2017,” said Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.
Baker Hughes BHGE, +0.46% on Friday reported that the number of active U.S. rigs drilling for oil fell for a sixth straight week, down by six to 713 this week.
“The continued declining U.S. rig-count illustrates the gravity of depressed oilfield activity and dire situation of shale drillers,” he told MarketWatch.
“Any news of slowing or stagnating U.S. oil production has massive repercussions, since the whole premise of OPEC and Russia has been to contain U.S. production growth,” Raj said. “Any signs that OPEC strategies have worked to contain U.S. oil production, would be supportive of substantially higher crude oil prices.”
Crude-oil prices had seen some support Thursday after the U.S. Defense Department announced the deployment of U.S. military personnel and equipment to Saudi Arabia, arresting a pullback in crude fueled in part by news reports, citing Saudi officials, that the country had restored production capacity to more than 11 million barrels a day.
Analysts remained skeptical of the figure, but said it was possible that capacity was returning more quickly than had been anticipated.
“Saudi Arabia, with support from U.S. President Trump, has effectively assured the market that the mid-September missile attacks were one-off set of events, and therefore the Aramco’s facilities are not in any lingering risk,” said Raj.
In other energy trading, October gasoline RBV19, -0.49% fell 0.6% to $1.6514 a gallon, losing 1.6% for the week, while October heating oil HOV19, -0.43% lost 0.7% to $1.9416 a gallon, for a weekly loss of about 2.3%.
November natural-gas futures NGX19, -1.92% declined 1.6% to $2.404 per million British thermal units, with the front-month contract posting weekly loss of 5.9%.