Gas flares from an oil production platform at the Soroush oil fields in the Persian Gulf, south of the capital Tehran. Picture: REUTERS/RAHEB HOMAVANDI
Gas flares from an oil production platform at the Soroush oil fields in the Persian Gulf, south of the capital Tehran. Picture: REUTERS/RAHEB HOMAVANDI

London — Oil prices fell on Wednesday after industry data showed an increase in US crude inventories and on demand concerns linked to a protracted trade war between China and the US.

However, analysts said oil markets remained tight amid supply cuts led by oil cartel Opec and as political tension escalates in the Middle East.

Brent crude futures were down 70 US cents at $71.48 a barrel by 9.06am GMT and are set for their biggest daily fall in 11 days. US West Texas Intermediate (WTI) crude futures for July delivery were down 68c at $62.45.

"Buying pressures are sandwiched between mounting geopolitical disruption risks in the Middle East and jitters over the fallout from the intensifying US-China trade dispute," PVM's Stephen Brennock said in a note.

"As a result, the oil market is at a crossroad with both these risks carrying the potential to send prices $10 a barrel in either direction … Even a modest bout of profit taking could quickly cascade into a selling frenzy."

In a trade war between China and the US, no further talks between top officials have been scheduled since the last round ended in a stalemate on May 10.

The conflict is weighing on economic growth forecasts and with that, oil demand predictions. On Tuesday, the Organisation for Economic Co-Operation and Development (OECD) revised down its global growth forecast for 2019.

Adding to bearish factors, industry body American Petroleum Institute (API) said on Tuesday that US crude stockpiles rose by 2.4-million barrels last week.

Official data from the US Energy Information Administration's oil stockpiles report is due at 2.30pm GMT. Analysts polled by Reuters estimated, on average, that crude inventories fell 600,000 barrels in the week to May 17.

Beyond market fundamentals, oil traders are looking to the tension between the US and Iran. On Tuesday, acting US defence secretary Patrick Shanahan said threats from Iran remained high.

Outside the US, Saudi Arabia said on Wednesday that it was committed to a balanced and sustainable oil market.

Saudi Arabia has been at the forefront of supply cuts led by Opec that began in January.

US bank Morgan Stanley said it expected Brent prices to trade in a $75-$80 per barrel range in the second half of 2019, pushed up by tight supply and demand fundamentals.

The physical oil market is also showing signs of tightness.

Qatar Petroleum has sold al-Shaheen July delivery crude at the highest average premium since 2013 on robust demand for medium-heavy grades in Asia, trade sources said. 

Reuters