American oil helps keep markets flat
Iran seized the British-flagged tanker Stena Impero in the Strait of Hormuz on Friday, escalating tensions with the UK, but oil markets did not respond with a major upswing.
Oil prices gained about 1 per cent on Friday, erasing four days of losses, but did not reach session highs for the day.
Among the reasons for this is that the US has shifted from being an importer of oil to becoming a major producer, with the use of fracking technology in shale formations making the US the world’s largest crude producer.
While the Strait of Hormuz is critical as a passageway for a third of oil traded globally, the increase in the global supply from the US helps mitigate the volatility in oil price swings during times of tension.
US crude output in April rose to a monthly record, surpassing 12 million barrels per day, the US Energy Information Administration said.
The US produced 12.16 million barrels a day of crude in the month, up 246,000 bpd from a month before.
By 2024, the US will export more oil than Russia and will close in on Saudi Arabia, bringing more diversity of supply in markets, the International Energy Agency said.
Global demand for oil is also forecast to drop next year because of a global economic slowdown amid a trade spat between the US and China.
The agency is revising down its forecast for global oil demand this year to 1.1 million bpd and may cut it again if the global economy, and specifically China, weakens, executive director Fatih Birol told Reuters.
The agency forecast last year that 2019 oil demand would grow by 1.5 million bpd, but in June this year it reduced the forecast to 1.2 million bpd.
The agency said it did not expect oil prices to rise significantly as demand was slowing and there was an oversupply in global crude markets.
A substantial supply of oil is coming into the market from the US, as well from Iraq, Brazil and Libya, Mr Birol said.
While not foreseeing a huge increase in oil prices, Mr Birol gave a warning that serious political tensions could yet effect market dynamics.
But Helima Croft, head of global commodity strategy at RBC Capital Markets, said oil was not responding to tension in the region as it did before.
“Oil has become a broken barometer for Middle East conflict. A few years ago, you could almost gauge how serious a security crisis was because of the oil price,” Ms Croft told CNBC.
Daniel Yergin, vice chairman of IHS Markit, said the “market reaction was relatively tepid” compared to what it would have been several years ago due to weak oil demand and a glut of oil supply in the market.