WTI at $68, uncertain outlook spurs volatility

Oil headed for a weekly gain as threats to supply in Iran and Venezuela overshadowed risks to demand, while an uncertain outlook heightened volatility.

Futures in New York are on course for a 1.7 percent advance this week amid signs that looming U.S. sanctions are taking a toll on Iranian crude exports. Volatility headed for the biggest weekly increase since May as a warning from OPEC on the risks to demand in emerging economies was countered by the International Energy Agency’s warning of an increasingly tight oil market.

Oil has risen about 6 percent from the lows of August as the threat of sanctions forced buyers to shun imports from Iran, while slowing crude production growth and shrinking inventories in America added to fears of a supply crunch. Concerns over the U.S.-China trade tension and a rout in emerging markets also weighed on sentiments in wider financial markets.

“Iranian exports are falling very, very quickly,” Amrita Sen, chief oil analyst at Energy Aspects Ltd., said in a Bloomberg television interview. “There’s a lot of focus right now on Iran but also on emerging-market demand. The trade war is something we are watching very, very closely.”

West Texas Intermediate futures for October delivery rose as much as 55 cents, or 0.8 percent, to $69.14 a barrel on the New York Mercantile Exchange and traded at $68.84 at 13:42 p.m. in London. The contract has climbed $1.14 this week. Total volume traded was about 36 percent below the 100-day average.

Brent for November settlement was little changed at $78.30 a barrel on the ICE Futures Europe exchange after sliding 2 percent on Thursday. The contract is up 1.9 percent this week. The global benchmark was at a $9.64 premium to WTI for the same month on Friday.

With Iranian crude exports falling significantly even before U.S. sanctions take effect in November, the IEA warned that oil prices could break out above $80 a barrel unless other producers act to offset the losses. It’s uncertain whether Saudi Arabia and others will fill any shortfall, or how far they’re able to do so, it said.

Traders are looking to the Organization of Petroleum Exporting Countries and its allies for clarity. The group, known as OPEC+, is scheduled to meet in Algiers on Sept. 23. to discuss their production and the state of the oil market.

The trade dispute between the world’s two largest economies continued to rattle markets, with President Donald Trump tweeting on Thursday that he is “under no pressure” to make a deal with China just moments after saying they are working on a new round of talks.

“While oil prices are higher this week, volatility will stay despite the obvious supply drop among some OPEC members such as Iran, as the trade conflict between the world’s two biggest economies is still in play,” Kim Kwangrae, a commodities analyst at Samsung Futures Inc., said by phone from Seoul.

© 2018 Bloomberg L.P