Oil prices climb amid Saudi tensions, but demand outlook drags

By On October 15, 2018

Oil prices climb amid Saudi tensions, but demand outlook drags

Oil prices rose on Monday as tension over the disappearance of a prominent Saudi journalist stoked supply worries, although concerns over the long-term demand outlook dragged on sentiment.

Crude markets were also supported in the wake of data that showed South Korea did not import any oil from Iran in September for the first time in six years, before U.S. sanctions against the Middle Eastern country take effect in November.

Brent crude had risen 74 cents, or nearly 1 percent, to 81.17 a barrel by 9:07 a.m. ET (1207 GMT), on track for its biggest daily gain since Oct. 9.

U.S. crude futures climbed 46 cents to $71.80 a barrel, extending gains they racked up on Friday after hefty losses on Wednesday and Thursday.

Concerns over oil are growing: Analyst Concerns over oil are growing: Analyst

"Growing tensions over the disappearance of journalist Jamal Khashoggi at the Saudi consulate in Istanbul has proved supportive for oil prices," said ING commodities strategist Warren Patterson.

Saudi Arabia has been under pressure since Khashoggi, a critic of Riyadh and a U.S. resident, disappeared on Oct. 2 after visiting the Saudi consulate in Istanbul.

U.S. President Donald Trump threatened "severe punishment" if it is found that Khashoggi was killed in the consulate. Saudi Arabia said it would retaliate to any action against it over the Khashoggi case, state news agency SPA reported on Sunday, quoting an official source.

The Saudi embassy in Washington D.C. later clarified the statement, saying the kingdom extends its "appreciation to all, including the US administration, for refraining from jumping to conclusions on the ongoing investigation."

On Monday, Trump said he had spoken with King Salman about Khashoggi and that he was sending Secretary of State Mike Pompeo to meet the king immediately.

"This has raised concerns that the Saudis may use oil as a tool for retaliation if any sanctions or other action is taken against it," Patterson said.

Saudi retaliation is 'something of an empty threat': Expert

Analysts said, however, it was difficult to imagine Saudi Arabia taking action that would hit world oil supply.

"So far the oil market is withstanding the verbal war and though prices are slightly higher ... they are a good $5 below the peak last week," said Fiona Cincotta, analyst at City Index.

Meanwhile, South Korea in September stopped importing Iranian oil for the first time in years.

"South Korea's move to stop Iran oil imports is giving the market confidence on prices," said Chen Kai, head of research at brokerage Shengda Futures.

Lingering geopolitical worries, trade concerns and a weaker economic outlook may pave the way for another week of volatile trading, Chen said, adding that Monday's recovery in prices was "fragile."

Exerting downward pressure on prices, Friday's monthly report from the International Energy Agency said the market looked "adequately supplied for now" and cut its forecasts for world oil demand growth this year and next. Q4 set to be the tightest for oil market, analyst says Fourth quarter set to be the tightest for the oil market, analyst says

OPEC, Russia and other oil producers, such as U.S. shale companies, had increased production sharply since May, the IEA said, raising world crude output by 1.4 million barrels per day (bpd).

"These are very bearish for oil prices," said Commerzbank commodities analyst Carsten Fritsch.

The secretary general of the Organization of the Petroleum Exporting Countries said last week the group saw the oil market as well supplied and that it was wary of creating a glut next year.

Societe Generale on Monday raised its forecast for Brent crude in the final quarter of this year to $82 from $78 per barrel after a sharp rise in prices over the past two months pushed Brent up from about $70.

The French bank wrote that there were "high levels of risk and uncertainty in the oil markets."

รข€" CNBC's Tom DiChristopher contributed to this report.

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