OILFIELDS: Natural gas flares are seen at an oil pump site outside Williston, North Dakota, in this March 11 2013 file photo. Picture: REUTERS
OILFIELDS: Natural gas flares are seen at an oil pump site outside Williston, North Dakota, in this March 11 2013 file photo. Picture: REUTERS

New York — Oil prices fell on Monday, reversing course from last week as supplies from Saudi Arabia and Russia rose and economic growth stumbled in Asia amid an escalating trade dispute with the US.

Global benchmark Brent crude fell $1.16 to $78.07 a barrel by 10.33am after earlier touching a session low of $77.89.

US light crude dropped 28c to $73.87 a barrel.

The premium for US crude for the front month compared with the second month widened to as much as $1.98 a barrel, the most since August 20 2014.

The move indicates that the market expects supply shortages to be more severe in the short term.

The move came after information provider Genscape said US crude inventories at Cushing, Oklahoma, had fallen in the week, traders said.

Genscape said stockpiles at the Cushing delivery hub were down 3.2-million barrels in the week June 22, but rose slightly in the four following days to June 26.

Oil prices rose strongly last week, with the US crude contract hitting its highest in three-and-a-half years at $74.46.

But a flurry of announcements over the weekend unsettled oil markets.

"There seems to be great uncertainty about how much oil will be added to the supply side of the market," said Gene McGillian, vice-president of market research at Tradition Energy in Stamford, Connecticut, referring to how much Saudi Arabia’s spare capacity would be able to offset shortages around the world.

"How this really is going to play out seems to be up in the air."

US President Donald Trump tweeted on Saturday that Saudi Arabia’s King Salman bin Abdulaziz Al Saud had agreed to pump more oil, "maybe up to 2,000,000 barrels". The White House later retracted the comments.

Saudi Arabia’s output is up by 700,000 barrels a day from May, a Reuters survey showed, and close to its 10.72-million barrels a day record from November 2016.

Russian output rose to 11.06-million barrels a day in June from 10.97-million barrels a day in May, the energy ministry said on Monday.

US production has soared 30% in the past two years to 10.9-million barrels a day, meaning the world’s three biggest oil producers now churn out almost 11-million barrels a day each, meeting a third of global oil demand.

Also weighing on oil demand are trade disputes between the US and other major economies, including China, the EU, India and Canada.

China, Japan and South Korea all reported slowdowns in export orders in June amid escalating trade disputes with the US.

"Recurring salvos in the trade war and falling asset prices raise the question of how much tariffs could damage the global economy," US bank JPMorgan said.

The bank said a "medium-intensity [trade] conflict" would likely reduce global economic growth by at least 0.5% "before accounting for tighter financial conditions and sentiment shocks".

Despite the relief from Saudi Arabia and Russia, oil markets remained tense because of unplanned outages from Canada to Venezuela and Libya.

Looming US sanctions against Iran further contributed to expected tightness.

Trump threatened on Sunday to put sanctions on European companies that do business with Iran.

"The Trump administration’s plan for Iran sanctions is now abundantly clear. They seek to push Iranian exports of crude, condensate and oil products to zero," energy consultancy FGE said.