Oil futures reversed earlier losses on Tuesday to tally a gain for the session, a day ahead of data that are expected to reveal a sixth consecutive weekly decline in U.S. crude supplies.
Reports that the U.S. and China will hold trade talks next week also helped to ease worries about energy demand, after the International Monetary Fund cut its global economic forecast—feeding the potential for a slowdown in oil consumption. U.S. trade negotiators will head to China next week for in-person trade talks, sources told CNBC Tuesday.
West Texas Intermediate crude CLU19, +1.19% for September delivery rose 55 cents, or 1%, on the New York Mercantile Exchange, to settle at $56.77 a barrel. September Brent BRNU19, +0.22% the global benchmark, added 57 cents, or 0.9%, to $63.83 a barrel on ICE Futures Europe.
Oil market moved higher Tuesday afternoon on the back of “three bullish catalysts,” said Tyler Richey, co-editor at Sevens Report Research.
The latest analysts survey estimate calls for a crude-supply reduction in the Energy Information Administration’s report due Wednesday, and there was also “a headline crossed that the British military has approached its [European Union] allies to discuss [a] mission of protecting ships traveling through the Strait of Hormuz, and news of face-to-face, U.S.-China trade negotiations next week,” said Richey.
Trade group the American Petroleum Institute will release its U.S. supply figures late Tuesday. The much-anticipated government report from the EIA will come out early Wednesday.
The EIA is expected to reveal a fall of 4.4 million barrels in crude supplies for the week ended July 19, according to a survey of analysts polled by S&P Global Platts. That would mark a sixth straight weekly decline.
Gasoline inventories are seen 1.1 million barrels lower for the week, but distillate stockpiles, which include heating oil, may show an increase of 1.7 million barrels, the survey showed.
August natural gas NGQ19, -0.82% shed 1.2 cents, or 0.5%, to $2.30 per million British thermal units.
Overall, however, oil prices have failed to get much of a boost from “the possibility of disruption of the major global chokepoint for oil” at the Strait of Hormuz, Marshall Gittler, chief strategist at ACLS Global, told MarketWatch. Oil prices fell sharply last week, after posting a sizable gain the week before.
“Despite all the threatening talk [between the U.S. and Iran], it appears that both sides want to back away from the edge,” Gittler said. At the same time, “the supply fears are balanced by demand fears as global output slows.”
“You can see how the oil price is roughly linked to global industrial output,” he said. “As fears for the global economy increase, fears of a global oversupply of oil are also likely.”
Carsten Fritsch, commodity analyst at Commerzbank, said the market may also take its cue from actions by Boris Johnson, who is due to become the U.K.’s new prime minister on Wednesday after winning the Conservative Party’s leadership contest. “If Johnson takes a tough stance, this could prompt market participants to reassess the situation [in the Middle East], pushing oil prices up more sharply,” he said in a note. Iran seized a British-flagged tanker in the Strait of Hormuz last week.
Some analysts have argued that traders are underestimating the risks surrounding the Iran situation, warning that no clear path to ratcheting down tensions has yet emerged.
“With all the uncertainty with the Iran issue, traders are waiting for a reason to push prices higher,” said Scott Gecas, chief market strategist at Walsh Trading. As tensions linger, U.S. President Donald “Trump’s ego continues to grow” and that could lead to “some type of U.S. military action.”