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Sept. 5, 2019, 3:37 p.m. EDT

Oil rally fades, with U.S. prices erasing nearly all of their earlier gains

U.S. supply decline, heightened Middle East tensions, plans for trade talks fail to provide much support

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By Myra P. Saefong and Mark DeCambre, MarketWatch


Reuters
Oil continue

A rally in oil futures faded by the end of Thursday’s trading session, prompting U.S. prices to erase nearly all of their earlier gains as plans for U.S.-China trade talks next month failed to fully calm nervousness over the outlook for the global economy.

Oil prices were up by nearly 3% to touch session highs following a third straight weekly drop in U.S. crude stockpiles, heightened tensions in the Middle East and news of the trade talks. Prices pulled back sharply just ahead of the end of the regular trading session.

“There is still a lot of uncertainty regarding a possible trade deal between the U.S. and China,” Alfonso Esparza, senior market analyst at Oanda, told MarketWatch. “We have been here before and history has taught us that a trade cease-fire could lead to even more aggressive actions.”

And “despite the drawdown in U.S. stocks, there seems to be plenty of black stuff to go around,” he said.

West Texas Intermediate crude for October delivery  edged up by 4 cents, or 0.07%, to settle at $56.30 a barrel on the New York Mercantile Exchange after trading as high as $57.76. A 4.3% rally on Wednesday marked the biggest dollar and percentage gain since July 10, according to Dow Jones Market Data.

The global benchmark, November Brent crude , climbed by 25 cents, or 0.4%, to $60.95 a barrel on ICE Futures Europe—down from a high of $62.40. It rose 4.2% a day earlier.

Oil had seen a sharp rise on news of heightened tensions in the Middle East, just ahead of the price boost it got from the U.S. supply report. Tasnim New Agency reported that Yemeni troops launched missile attacks against Saudi troops in Jizan and Haradh, Saudi Arabia, killing and injuring more than 30 Saudi troops. “Oil got a pop on this headline. It complicates U.S/Iran talks as well,” said Phil Flynn, senior market analyst at Price Futures Group.

Meanwhile, the Energy Information Administration on Thursday reported that U.S. crude supplies declined by 4.8 million barrels for the week ended Aug. 30. That followed declines in each of the previous two weeks and oil prices rose to fresh highs for the session.

On average, analysts polled by S&P Global Platts forecast a fall of 3 million barrels, while the American Petroleum Institute on Wednesday reported an increase of 401,000 barrels, according to sources. The EIA and API reports were each released a day later than usual because of Monday’s Labor Day holiday.

Wednesday’s “API report has been proven to be a head-fake,” said Matt Smith, director of commodity research at ClipperData. “The EIA has reported a solid draw to crude stocks, with refining activity at a similar pace to last week, production dipping slightly, and exports holding above 3 million barrels per day for a second week—a hat-tip to Permian pipelines,” which have alleviated bottlenecks in the region.

The EIA data also showed weekly supply declines of 2.4 million barrels for gasoline and 2.5 million barrels for distillates. The S&P Global Platts survey had forecast inventory losses of 1.9 million barrels for gasoline and 120,000 barrels for distillates.

On Nymex, October gasoline  picked up 1.3 cents, or 0.9%, to $1.546 a gallon, while October heating oil  added nearly a penny, or 0.4% to $1.8885 a gallon.

Oil prices also found earlier support after the Chinese Commerce Ministry said U.S. and Chinese negotiators will meet in early October to resume negotiations to resolve a yearlong dispute on import duties and intellectual property rights. The dispute has arguably provided the most severe headwind for oil prices rising. China is one of biggest consumers and importers of crude oil, and the tariff conflict has threatened to create a global slowdown, damaging demand for crude products.

In related news, Saudi Crown Prince Mohammed bin Salman and Iraqi Prime Minister Adel Abdul Mahdi emphasized the importance of cooperation to stabilize oil markets during a phone call Thursday, Arab News reported .

Elsewhere on Nymex, October natural gas  shed a penny, or 0.4%, to $2.435 per million British thermal units.

The EIA on Thursday reported that domestic supplies of natural gas rose by 84 billion cubic feet for the week ended Aug. 30. That was higher than the average increase of 75 billion cubic feet forecast by analysts polled by S&P Global Platts.

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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