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July 17, 2019, 3:19 p.m. EDT

Oil prices at two-week lows as U.S. crude supplies fall less than expected and product stocks climb

Brent oil gives up earlier gains as traders weigh potential for U.S.-Iran talks

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By Myra P. Saefong and Mark DeCambre, MarketWatch


Bloomberg News/Landov
Oil regains some of Tuesday’s heavy losses

Oil futures marked their lowest finish in roughly two weeks on Wednesday, as U.S. government data revealed that domestic crude supplies fell for a fifth straight week, but the stocks were down by less than the market expected and product inventories climbed.

August West Texas Intermediate crude shed 84 cents, or 1.5%, to settle at $56.78 a barrel on the New York Mercantile Exchange, after a 3.3% tumble on Tuesday. Prices settled at their lowest since July 3.

International benchmark September Brent had spent part of the session moving higher, before following WTI lower. It fell 69 cents, or 1.1%, to end at $63.66 a barrel on ICE Futures Europe, the lowest since July 4.

Potential progress toward negotiations between the U.S. and Iran over Tehran’s missile program also put pressure on oil prices Wednesday.

“Oil traders know that if there is a chance that oil sanctions get lifted, then that will be bearish” for prices, said Phil Flynn, senior market analyst at Price Futures Group. Senator Rand Paul asked President Donald Trump if he could sit down with Iranian Foreign Minister Javad Zarif in an effort to reduce tensions between the nations, according to Politico .

“Paul has been on record against getting involved in foreign entanglements. That’s a sign that Trump is serious about getting a deal” done with Iran, and adding Iranian oil “in a market that is concerned about demand is bearish,” said Flynn.

On Tuesday, crude oil prices were under pressure after reports that U.S. Secretary of State Mike Pompeo said Iran is ready to enter negotiations over its missile program, easing concerns about tensions between Washington and Tehran that had put the flow of oil in the Middle East at risk. Iran, however, rejected suggestions that its willing to hold talks with the U.S. over Tehran’s missile program, according to BBC News .

Tensions between Tehran and Washington have escalated since last year when the Trump administration withdrew from a nuclear agreement with the Middle Eastern country and tightened sanctions against the country last May.

Meanwhile, the Energy Information Administration early Wednesday reported that U.S. crude supplies fell for a fifth consecutive week, but by less than the market expected—and petroleum products posted sizable gains.

Crude stockpiles were down 3.1 million barrels for the week ended July 12. They were forecast to fall by 4.2 million barrels, according to analysts polled by S&P Global Platts. The American Petroleum Institute on Tuesday reported a decline of 1.4 million barrels, according to sources.

A hurricane-impacted report shows a drop in production and imports offsetting lower refining activity to yield a draw to crude stocks,” said Matt Smith, director of commodity research at ClipperData. “Next week’s report will likely be even more mottled by the impact of Hurricane Barry.” The Bureau of Safety and Environmental Enforcement didn’t yet have an update on Gulf of Mexico production Wednesday, citing an internet outage, but oil output had improved from the weekend, with 58% of Gulf oil output down as of Tuesday.

“A solid drop in implied demand has also yielded very solid builds to both gasoline and middle distillates,” Smith said.The large climb in product stocks “have helped tilt the overall report bearish.”

Gasoline inventories were up 3.6 million barrels and distillate stockpiles climbed by 5.7 million barrels last week, the EIA data showed. The S&P Global Platts survey revealed expectations for a supply decline of 1.5 million barrels for gasoline and an increase of 300,000 barrels for distillates.

On Nymex, August gasoline  fell 1.3 cents, or 0.7%, to $1.8787 a gallon, while August heating oil  settled at $1.8926 a gallon, down 1.2 cents, or 0.7%.

August natural gas  shed less than a half penny, or about 0.1%, to $2.304 per million British thermal units, following a 4.2% decline a day earlier.

Read: Oil stocks have lagged the S&P 500 in 2019 but Wall Street loves them

Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong. Mark DeCambre is MarketWatch's markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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