HOUSTON (REUTERS) – Oil rose to almost US$64 on Tuesday (July 23), jumping late in the session after the head of US Central Command said the United States may have taken down a second Iranian drone over the Strait of Hormuz last week.
Signs of rising tensions in the Middle East offset the International Monetary Fund’s weaker global growth outlook, which had kept prices largely flat for much of Tuesday’s session.
Iran’s capture of a British oil tanker last week sparked worries about supply disruptions in the Strait of Hormuz, through which about a fifth of the world’s oil flows. The United States had said a Navy ship “destroyed” a drone there after it threatened the vessel, but Iran said it had no information about losing a drone.
“We are confident we brought down one drone, we may have brought down a second,” General Kenneth McKenzie told CBS News in an interview.
The US warship Boxer may have brought down a second drone last week, a US official told Reuters on the condition of anonymity, though they are still trying to confirm it.
Brent crude settled up 57 cents, nearly 1 per cent, at US$63.35 a barrel. US West Texas Intermediate crude settled up 55 cents, about 1 per cent, at US$56.43.
“The oil market gets nervous when there’s an event in the Persian Gulf that involves shooting down a piece of equipment,” said Andy Lipow, president of Lipow Oil Associates in Houston. “It stokes market anxiety that tensions are being ratcheted up, and that increases fears of a significant supply disruption.”
The tensions come as the United States aims to cut off Iran’s oil exports and against the backdrop of supply cuts led by the Organization of the Petroleum Exporting Countries since the start of the year to prop up prices.
As part of US efforts against Iran, Washington has imposed sanctions on Chinese state-run energy company Zhuhai Zhenrong for allegedly violating restrictions imposed on Iran’s oil sector.
US crude stocks fell more than expected last week, declining in the week to July 19 by 11 million barrels, to 449 million, the trade group American Petroleum Institute said on Tuesday. That compared with analysts’ expectations of a decrease of 4 million barrels.
Following the API release, Brent crude rose to US$64.20, up 94 cents, after the settlement. US crude rose US$57.16, up 94 cents.
“That could be bullish for crude oil and support prices despite some of the fear about growing US supply,” said Bill Baruch, president at Blue Line Futures LLC in Chicago.
Oil may find more support if forecasts are correct for another drop in US crude inventories. The US government’s official figures are due Wednesday morning.
In the week ended July 12, US commercial crude stocks were 455.9 million barrels, almost 45 million barrels above levels this time last year, according to US government data.
On Tuesday, the IMF cut its forecast for global growth, warning that further US-China tariffs or a disorderly exit for Britain from the European Union could weaken investment and disrupt supply chains.
“It was a reminder of what the oil market is staring down, with demand contracting,” said John Kilduff, a partner at Again Capital LLC in New York. “That’s what’s been holding back prices.”
On Sunday, Goldman Sachs lowered its 2019 oil demand projection, joining other forecasters.
The International Energy Agency, however, said global supply remains plentiful due to strong growth in output from the United States and other non-Opec producers.
“We’re oversupplied big here in the United States, and the global demand situation is not all that good,” said Robert Yawger, director of energy futures at Mizuho in New York.
The full restart of Libya’s largest oil field also pressured prices, which had rallied a day earlier on concerns of supply disruptions in the heavily trafficked Strait of Hormuz following Iran’s weekend capture of a British oil tanker.
Middle East tensions have periodically bolstered prices as the United States has aimed to cut off Iran’s oil exports.