Oil slips as focus turns to surplus from shortage

By Jessica Resnick-Ault

NEW YORK (Reuters) - U.S. crude oil futures fell on Tuesday as worries over supply disruptions eased and the focus moved to increasing domestic production and potential damage to global growth from the U.S.-China trade dispute.

U.S. West Texas Intermediate crude (WTI) was 81 cents lower at $67.26 a barrel by 10:53 a.m. EDT [1453 GMT]. It lost 4.2 percent on Monday.

Brent futures rose 9 cents to $71.93 a barrel, after earlier trading as low as $71.35 a barrel, its lowest since April 17. Brent fell 4.6 percent on Monday.

"Fears of shortages, which pushed prices as high as $80 per barrel in early summer, are receding and concerns about looming surpluses growing," Carsten Menke, commodity research analyst at Swiss private bank Julius Baer, said.

 

The market is waiting for clear signals on supply, including whether the U.S. will release crude from its Strategic Petroleum Reserve and whether Libya's oil production will rebound following military clashes in late June and early July, said Tariq Zahir, managing member at Tyche Capital in New York.

"You really have to see how much Saudi is going to produce, along with Russia," he said.

Russian crude production could also ramp up, restoring 300,000 barrels per day (bpd) that were cut in an agreement with OPEC, he said.

"I think we're going to get to a more balanced market as we get to the fourth and first quarter of next year."

Oil prices have fallen by almost 10 percent over the last week as crude export terminals in Libya have reopened and exports from other OPEC countries and Russia have increased.

Production from seven major U.S. shale oil formations is expected to rise by 143,000 bpd to a record 7.47 million bpd in August, the U.S. Energy Information Administration said on Monday. Output is expected to rise in all seven formations.

Intercontinental Exchange (ICE) announced its plans to launch a contract for WTI crude deliverable in Houston, compared with the current WTI contract that has its delivery point at the Cushing, Oklahoma storage hub.

The new contract will facilitate crude purchases for foreign buyers who export the crude. The contract underscores the rising volumes of crude from the Permian that are increasingly available for export.

Also undermining prices is concern the growing trade war between the United States and other major trading blocs, particularly China, could dampen economic activity and hence squeeze oil demand.

China this week reported slightly slower growth for the second quarter and the weakest expansion in factory activity in June in two years, suggesting a further softening in business conditions in the coming months as trade pressures build.

Beijing's state planning agency said it was still confident of hitting its economic growth target of around 6.5 percent this year, despite views that it faces a bumpy second half as the trade row with Washington intensifies.

Goldman Sachs said it expects price volatility to remain elevated, keeping Brent in a $70-$80 per barrel range in the short term.

"Supply shifts, alongside the ongoing surge in Saudi production, create the risk that the oil market moves into surplus" in the third quarter, the report said.

(Reporting by Aaron Sheldrick in Tokyo and Christopher Johnson in London; Editing by Marguerita Choy, Emelia Sithole-Matarise and Jan Harvey)