Oil Rebounds With U.S. Stocks

Prices fell to the lowest level since Sept. 13 on Thursday, hurt by climbing supplies in the U.S. and weakness in major U.S. stock indexes off disappointing economic data from China. However, a rebound in shares on Friday helped the crude market stabilize, traders said.

“We’ve been playing risk on, risk off,” said Tariq Zahir, managing member of Tyche Capital Advisors. “We’re really watching from more of a global macro standpoint here.”

Oil has also come under pressure from data showing that inventories are on the rise. On Wednesday, the U.S. Energy Information Administration reported that stockpiles of crude oil rose by 6.5 million barrels in the week ended Oct. 12 to their highest level since late June.

“US inventories now show a clear surplus to the five-year average and are trending higher, suggesting the market remains well-supplied for the moment,” said analysts at Schneider Electric.

Still, traders said potential supply disruptions still remain on the horizon, with Iranian sanctions set to come into effect in early November.

The International Energy Agency last week said Iranian supply fell to a 2½-year low in September as buyers continued to reduce their purchases before the Nov. 4 deadline. Crude production fell by 180,000 barrels a day month-on-month, to stand at 3.45 million barrels a day last month, the agency said.

Meanwhile, the Organization of the Petroleum Exporting Countries is struggling to increase output to make up for the barrels lost from Iran and Venezuela, according to a Reuters report.

Prices were also bolstered by a late September decision by the Organization of the Petroleum Exporting Countries and its production allies not to ramp up crude output at a faster pace than planned. Saudi Arabia and Russia in June engineered a plan for OPEC and its partner producers to gradually begin increasing production after more than a year of holding back output.

But now “concerns about a tightening of supply, which predominated until two weeks ago, have abated despite the fact that the reasons for them—falling Iranian oil exports, declining oil production in Venezuela, reduced spare capacities—still apply,” analysts at Commerzbank wrote in a daily note Friday. “It appears that the IEA’s significantly more relaxed outlook for next year has prompted many market participants to look beyond the supply shortage until year’s end.”

Both the IEA and OPEC last week cut their estimates for global oil demand growth for both this year and next.

Gasoline futures rose 1.9% to $1.9274 a gallon and diesel futures rose 1% to $2.3175 a gallon.

Write to Stephanie Yang at [email protected] and Christopher Alessi at [email protected]