Doubt keeps cap on progress for oil market

Outlook for global demand weakens, says International Energy Agency

Oil delivers its worst week in a month as the outlook for demand worsens, compliance with OPEC’s deal falters and doubts creep in about the group’s commitment to cutting production.

Oil had its worst week in a month as compliance with OPEC’s deal falters and the outlook for demand worsens.

While a weaker dollar helped push prices in New York 0.5 percent higher on Friday, erasing earlier losses, futures closed 1.5 percent down for the week. The International Energy Agency reduced demand estimates for OPEC crude this year and 2018, and said there are doubts about the group’s commitment to cutting production. Even a pledge by Saudi Arabia and Iraq to strengthen their commitment to the curbs isn’t helping.

“With the latest rhetoric from the IEA, it looks like the balancing cycle is further protracted, which is not great for the market,” said Michael Loewen, a strategist at Scotiabank in Toronto. Investors need to see either OPEC production really decline or compliance to the output-reduction deal improve to believe rebalancing is happening, he said.

Oil just hasn’t been able to stick to the $50 mark in New York even though U.S. crude inventories are at their lowest since October, in part because recent declines are seen mostly as the result of summer demand that’s soon to fade. OPEC’s rate of compliance with output cuts slid to 75 percent in July, the lowest since the accord started in January, the IEA said. OPEC said its output is increasing on supplies from Libya, which is exempt from the deal.

If OPEC’s compliance to the

deal continues to slow, “the rebalancing is going to take a longer time,” said Mark Watkins, a Park City, Utah-based regional investment manager at U.S. Bank Wealth Management.

Meanwhile, the number of rigs exploring for oil and natural gas in the U.S. decreased by five this week to 949.

A year ago, just 481 rigs were active.

Down in Texas

Houston oil field services company Baker Hughes, a GE company, said Friday that 768 rigs sought oil and 181 explored for natural gas this week. Texas lost seven rigs to 459.

Among other major oiland gas-producing states, California and New Mexico each increased by one rig, Louisianadecreasedbyone.

West Texas Intermediate for September delivery rose 23 cents to settle at $48.82 a barrel Friday on the New York Mercantile Exchange.

Brent for October settlement rose 20 cents to end the session at $52.10 a barrel on the London-based ICE Futures Europe exchange.

The global benchmark traded at a premium of $3.13 to October WTI.

Lower projections

The IEA Friday lowered projections for the amount of crude required from OPEC this year and next by about 400,000 barrels a day.

About 32.6 million barrels a day will be needed from the group this year, less than the 32.84 million it pumped in July.

Earlier in the week, an Energy Information Administration report showed U.S. crude inventories dropped for a sixth straight week, yet gasoline stockpiles unexpectedly rose by themostsinceJanuary.

‘A brick wall’

This week’s inventory report “had a little bit of a bearish tilt to it. We usually don’t see gasoline builds at this time of year,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “We’re just stuck in this range here. $50 is definitely abrickwall.”