Energy Sector Update for 06/14/2019: BHGE, XOM, CVX, RDS.A, RDS.B, BP, E, COP, TOT, PBR, PBR.A, EC, SLB, HAL, NOV, SPN

(Updates with the price move and EIA/Goldman Sachs/IEA reports from the first paragraph.)

Crude oil fell this week after the International Energy Agency projected slower-than-expected growth in demand in the second quarter, outweighing the impact on prices this week of attacks on two oil tankers in the Strait of Hormuz, a passage on the south coast of Iran to almost a fifth global oil flows.

West Texas Intermediate futures rose by 0.6% to $52.57 per barrel intraday Friday as tensions escalated between Iran and the US, which blamed Tehran for the attacks. For the week as a whole, prices ended lower. Brent futures also closed the week lower, trading at $62.12 per barrel.

President Donald Trump was cited as saying on Fox & Friends that if Iran blocks the Strait of Hormuz, "it's not going to be closed for long."

Secretary of State Mike Pompeo blamed Iran for the attacks in the Gulf of Oman on Thursday. Iran has, meanwhile, denied its involvement in the attacks, even though it had a few months ago threatened to close Strait of Hormuz after the US re-imposed sanctions on the Middle Eastern nation, the third largest oil producer in the Organization for Petroleum Exporting Countries.

The Paris-based IEA's report put a ceiling on oil prices on Friday, as it said global demand growth was set to be lower by 100,000 barrels per day in the second quarter, compared with its previous forecast a month ago. It cited a warm winter in Japan, a slowdown in the petrochemicals industry in Europe and a worsening trade outlook across all regions as contributing factors to its expectations.

Citing data from the Netherlands Bureau of Economic Policy Analysis and various purchasing managers' indices, the IEA report noted that growth in trade has slumped.

"The consequences for oil demand are becoming apparent," the IEA warned. "In 1Q19, growth was only 0.3 million barrels per day versus a very strong 1Q18, the lowest for any quarter since 4Q11."

Echoing a similar viewpoint was Goldman Sachs, which said in a report published Sunday that fundamental uncertainty on the current and forward states of the global oil market was high, driven by an uncertain macro outlook and volatile Iran/Venezuela/Libya production scenarios.

"Combined with the debatable path of US production, this uncertainty is large enough to swing the global oil market between a surplus and a deficit on a monthly basis, just as OPEC+ prepares for its upcoming meeting," Goldman analysts led by Damien Courvalin wrote in the research report.

Meanwhile, the number of oil rigs operating in the US fell by one in the week that ended on May 31 to 788, according to data from energy services firm Baker Hughes (BHGE) Friday. That's the lowest level since Feb. 2, 2018. The combined oil and gas rig count in the US fell by six to 969 as gas rigs fell by five to 181.

In Canada, the number of oil rigs in operation rose by 10 to 69 while gas rigs slid by six to 38 during the period under review. As a result, the North American total slipped by two to 1,076 versus 1,198 a year ago, the data showed.

On Wednesday, the Energy Information Administration said that US crude oil stockpiles rose unexpectedly for a second consecutive week. Crude stockpiles climbed by 2.2 million barrels over a week to June 7 - that compares with expectations for a 481,000-barrel drop in a Reuters' survey of analysts.

The EIA further noted that the current crude stock at 485.5 million barrels was at its highest since July 2017, undermining a joint effort by the OPEC and non-OPEC producers led by Russia since the beginning of this year.

Japan's Nikkei cited Russia's Energy Minister Alexander Novak in a news report that said OPEC and non-OPEC producers were discussing an agreement to coordinate production in the long run. The cartel is due to meet later this month to review their combined cut of 1.2 million barrels per day, implemented since Jan. 1, to stabilize oil prices.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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