Oil edges lower, set for big weekly decline

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UPDATE 1-Oil edges lower, set for big weekly decline

* Brent down 0.5 pct, U.S. oil slips

* IEA warns capacity may be stretched

* Chinese crude imports fall (Adds charts, graphic, comment, updates prices)

By Aaron Sheldrick

TOKYO, July 13 (Reuters) - Oil prices edged lower on Fridayand were set for a second weekly fall, as the market shruggedoff a warning that spare capacity may be stretched as OPEC andRussia increase production.

Brent crude LCOc1 eased 36 cents, or 0.5 percent, to$74.09 by 0326 GMT. On Thursday it gained $1.05 a barrel,rebounding from a session low of $72.67. It is heading for aweekly fall of nearly 4 percent.

U.S. crude CLc1 dipped 4 cents to $70.29, after a fivecent decline in the previous session. It is heading for a weeklydecline of nearly 5 percent.

It has been a wild week for oil prices with both the mainbenchmarks suffering heavy losses on Wednesday as tradersfocused on the return of Libyan oil to the market amid concernsabout a China-U.S. trade war.

However, a warning on spare capacity by the InternationalEnergy Agency (IEA) pushed Brent higher on Thursday, helping itrecoup some losses.

"It is a tough market," said Tony Nunan, oil risk manager atMitsubishi Corp in Tokyo. "I think it is supported by relativelystrong demand and inventories are falling, but if you look alittle bit ahead U.S. shale oil just continues to grow and thenit depends on what goes on with OPEC."

The Organization of the Petroleum Exporting Countries (OPEC)and other key producers including Russia have responded to therecent market tightness by easing a supply-cut agreement.

The IEA cautioned that the world's oil supply cushion "mightbe stretched to the limit" due to production losses in severaldifferent countries.

"Rising production from Middle East Gulf countries andRussia, welcome though it is, comes at the expense of theworld's spare capacity cushion, which might be stretched to thelimit," the Paris-based IEA said in its monthly report.

"This vulnerability currently underpins oil prices and seemslikely to continue doing so," the agency said.

China's crude oil imports fell for a second month in a rowin June as shrinking margins and volatile oil prices led someindependent refiners, known as "teapots", to scale backpurchases, official data showed on Friday. urn:newsml:reuters.com:*:nL4N1U91L3

OPEC crude supply (Source: IEA)   https://reut.rs/2NLDrgP
CHART: U.S. oil may retest support at $69.19https://bit.ly/2Nbo3sH
CHART: Brent oil may retest support at $72.56https://tmsnrt.rs/2NJLFFX
(Reporting by Aaron Sheldrick; editing by Richard Pullin) ((aaron.sheldrick@thomsonreuters.com; 81-3-6441-1320; ReutersMessaging: aaron.sheldrick.thomsonreuters.com@reuters.net))

This article appears in: Stocks , World Markets , Oil , Commodities

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