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Oil prices dipped on Tuesday as rising trade tensions dented the outlook for fuel demand growth especially in Asia, although US sanctions against Iran still pointed towards tighter supply.
Front-month Brent crude oil futures LCOc1 were at $72.60 per barrel at 0338 GMT, down by 21 cents, or 0.3 per cent from their last close.
US West Texas Intermediate (WTI) crude futures CLc1 were down 5 cents at $67.58 per barrel.
Signs of slowing economic growth and lower fuel demand increases, especially in Asia’s large emerging markets are weighing on the oil markets.
“Demand growth from Asia in general is being called into question. This due to the negative impact of trade wars, a stronger dollar and rising funding costs,” Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank, said in a note late last week.
Despite the gloomy outlook for trade and the potential slowdown in economic growth, oil markets are expected to remain relatively tight, particularly as U.S. sanctions on Iran have started.
“If markets really go into a funk, I’d expect oil to be part of that. But the complicating factor right now is Iran and the sanctions,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
Because of the conflicting factors in oil markets, McKenna said “I’m staying out of oil at the moment.”
The United States has started implementing new sanctions against Iran, which from November will also target the country’s petroleum sector. Iran is the third-largest producer among the members of the Organization of the Petroleum Exporting Countries.
“With U.S. sanctions on Iran back in place ... maintaining global supply might be very challenging,” ANZ bank said on Monday, although it added that “the U.S. is doing its bit to increase production, with data showing drilling activity is continuing to rise.”
US energy companies last week added the most oil rigs since May, adding 10 rigs to bring the total count to 869, according to the Baker Hughes energy services firm, Reuters reported.
That was the highest level of drilling activity since March 2015.
However, keeping with the bearish tone of the market, hedge funds and other money managers reduced their bullish positions in US crude futures and options in the week ending on August 7, data from the US Commodity Futures Trading Commission showed on Friday.
The speculator group cut its combined net-long position in New York and London by 9,117 contract to 397,885 during the week, the lowest since June 19, the data showed.