Oil futures finished higher on Tuesday, with global benchmark prices leading the climb as traders waited to see if relations between the U.S. and Saudi Arabia sour further following the disappearance of a journalist in Turkey.
Worsening tensions between the two nations could result in a curtailment of global crude production from one of the most significant members of the Organization of the Petroleum Exporting Countries.
Prices also got a boost after S&P Global Platts reported, citing sources close to the project, that talks between Saudi Arabia and Kuwait over two shared oil fields have broken down. The breakdown of the talks is equivalent to the Saudis and Kuwaitis agreeing to cut production by 500,000 barrels a day, said Phil Flynn, senior market analyst at Price Futures Group.
S&P Global Platts said that the fields in the Saudi-Kuwait “Neutral Zone” were expected to produce some 500,000 barrels of oil a day.
West Texas Intermediate crude for November delivery on the New York Mercantile Exchange CLX8, +0.14% tacked on 14 cents, or 0.2%, to $71.92 a barrel, while December Brent crude LCOZ8, +0.68% rose 63 cents, or 0.8%, to $81.41 a barrel on ICE Futures Europe. Both benchmarks posted gains for a third-consecutive session.
Crude had rallied early Monday on tough rhetoric from U.S. President Donald Trump on the consequences should the Saudi government be found to have been involved in the disappearance of the journalist, Jamal Khashoggi, from the Saudi consulate in Istanbul, as well as implied threats from Riyadh over the impact that could have on global oil markets should the U.S. impose sanctions.
Both sides later cooled rhetoric, with Trump suggesting that “rogue killers” may have been involved. However, news reports said the Saudis were considering saying that Khashoggi had been unintentionally killed during an interrogation, according reports.
Khashoggi is a columnist for The Washington Post, which reported Tuesday that U.S. Secretary of State Mike Pompeo arrived in Saudi Arabia with for talks with officials over the journalist’s disappearance.
While such a declaration “may do little to quiet widespread suspicion that Crown Prince Mohammed bin Salman was behind an assassination plot, it could leave enough room for the U.S. and others to generally maintain diplomatic ties with the Saudi government,” said Robbie Fraser, commodity analyst at Schneider Electric, in a note. “That’s easing most concerns that Saudi Arabia could use its oil exports as a weapon against potential foreign sanctions, though that risk was limited under any scenario.”
Craig Erlam, senior market analyst at Oanda, said Trump clearly is “very reluctant to enter into a tit-for-tat with a key Middle Eastern ally.”
In other oil-related news, a monthly report from the Energy Information Administration on Monday projected crude output from seven major U.S. shale plays would rise 98,000 barrels a day in November to 7.714 million barrels a day.
Meanwhile, the American Petroleum Institute, an industry trade group, will release its weekly estimate of U.S. crude inventories late Tuesday, while the EIA’s more closely followed report will follow Wednesday morning.
Domestic crude supplies were forecast to climb by 1.88 million barrels for the week ended Oct. 12, according to analysts surveyed by S&P Global Platts. They also expect to see declines in stockpiles of gasoline by 1.52 million barrels and distillates by 1.5 million barrels.
“Weak export activity coupled with lower refinery utilization rates and strong production contributed to a build in U.S. crude inventories last week,” the survey said.
In other energy trading, November gasoline RBX8, +1.67% added 1.7% to $1.977 a gallon, while November heating oil added 0.6% to $2.340 a gallon. November natural gas NGX18, +0.06% edged down by just under 0.1% to $3.239 per million British thermal units.
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