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Slow-growth concerns drag oil prices lower

Calls for the release of oil from Western strategic stockpiles is creating something of a bearish sentiment, an analyst said.

By Daniel J. Graeber
Crude oil prices dropped sharply Monday as a call to tap strategic reserves and a slowing China take their toll. File Photo by Brian Kersey/UPI
Crude oil prices dropped sharply Monday as a call to tap strategic reserves and a slowing China take their toll. File Photo by Brian Kersey/UPI | License Photo

July 16 (UPI) -- Crude oil prices moved sharply lower ahead of the start of U.S. trading on Monday on signs of cooling economic growth and emerging supplies.

The lack of spare capacity on a market balanced delicately between supply and demand leaves little room for supply-side shocks from conflict in Libya, political unrest in Iraq, lingering challenges for Venezuela and the possible loss of Iranian oil to U.S. sanctions.

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Vandana Hari, a market analyst and founder of Vanda Insights, told UPI that Western allies have suggested more oil could come out of the strategic petroleum reserves to help buffer against the lack of supplies.

"The news of the U.S. actively considering releasing crude from the SPR in a bid to cool down gasoline prices, especially around the Nov. 6 mid-term elections, coming on top of reports that the International Energy Agency might be considering a stock release as well, appears to be the latest to dampen bullish sentiment in the market," she said.

On the demand side, Hari said there could be a cool down as trade tensions between the United States and China take a toll on the global economy. Data published by China's National Bureau of Statistics show gross domestic product increased 6.7 percent during the second quarter, slightly lower than first quarter growth of 6.8 percent, but within Beijing's target.

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The price for Brent crude oil, the global benchmark for the price of oil, was down 2.6 percent as of 9:23 a.m EDT to $73.34 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, was down 2.3 percent to $68.34 per barrel.

Hari added that Shell last week opened up more access to Nigeria, a member of the Organization of Petroleum Exporting Countries.

Markets could move later in the morning when the International Monetary Fund releases its world economic outlook at 10 a.m. EDT. Economists at the Organization of Petroleum Exporting Countries said Wednesday they expected global growth in gross domestic product for 2018 should be 3.8 percent, unchanged from its June forecast. Growth next year slows to 3.6 percent in part on deceleration in the European economy and China. India's economy grows by 7.3 percent next year and picks up slightly in 2019 to 7.4 percent.

The decline in oil prices may be short-lived and the release of strategic reserves could only be a short-term, Phil Flynn of the PRICES Futures Group in Chicago said.

"The release of oil from global reserves that some believe are for short term political purposes may lead us down a slippery slope that may backfire in the end," he said in a daily emailed newsletter. "Trying to use the oil reserve to try to control prices might prove fruitless because it may not slow growing demand and under-investment is the main reason for the tightening supply."

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