Oil settles $1 down as supply set to rise, uncertainty around Fed rate
cuts
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[August 31, 2024] By
Georgina McCartney
HOUSTON (Reuters) -Oil prices retreated on Friday as investors weighed
expectations of a rise in OPEC+ supply starting in October, alongside
dwindling hopes of a hefty U.S. interest rate cut next month, following
data showing strong consumer spending.
Brent crude futures for October delivery, which expire on Friday,
settled $1.14 lower, or 1.43%, at $78.80 a barrel, marking a decline of
0.3% for the week and 2.4% for the month.
U.S. West Texas Intermediate crude futures settled down $2.36, or 3.11%,
to $73.55, a drop of 1.7% in the week and a 3.6% decline in August.
The Organization of the Petroleum Exporting Countries and allies, known
as OPEC+, is set to proceed with a planned oil output hike from October,
as the Libyan outages and pledged cuts by some members to compensate for
overproduction counter the impact of sluggish demand, six sources from
the producer group told Reuters.
"OPEC+ talking about going ahead with tapering off production cuts was
the headline that really sunk us today," said Phil Flynn, analyst with
Price Futures Group.
Meanwhile, investors responded to new data that showed U.S. consumer
spending increased solidly in July, suggesting the economy remained on
firmer ground early in the third quarter and arguing against a
half-percentage-point interest rate cut from the Federal Reserve next
month.
Lower rates can boost economic growth and demand for oil.
"That modest inflation increase could basically solidify that we will
only get a quarter percentage-point cut and those hoping for a half will
have to wait," said Price Futures Group's Flynn.
Elsewhere, Libya's National Oil Corporation said recent oilfield
closures have caused the loss of approximately 63% of the country's
total oil production, as a conflict between rival eastern and western
factions continues.
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A pumpjack operates at the Vermilion Energy site in Trigueres,
France, June 14, 2024. REUTERS/Benoit Tessier/ File Photo
Production losses could reach between 900,000 and 1 million barrels
per day (bpd) and last for several weeks, according to consulting
firm Rapidan Energy Group.
Libya's eastern-based government announced the closure of all oil
fields on Monday, halting production and exports and driving oil to
settle at a near-two week high on Aug. 26.
"It is interesting see the shutdown of Libya's crude oil production
have such an impact on market prices one day and completely ignored
the next," said Tim Snyder, chief economist at Matador Economics.
“It looks to me right now there is a lot of negative inertia in the
market pulling prices down,” Snyder added.
Iraqi supplies are also expected to shrink after the country's
output surpassed its OPEC+ quota, a source with direct knowledge of
the matter told Reuters on Thursday.
Iraq plans to reduce its oil output to between 3.85 million and 3.9
million bpd next month.
In the U.S., the number of active oil rigs was unchanged at 483 this
week, but rose by one in August, Baker Hughes said.
(Reporting by Georgina McCartney in Houston, Alex Lawler in London,
Arunima Kumar in Bengaluru, Emily Chow in Singapore and Georgina
McCartney in Houston; Editing by Marguerita Choy, Deepa Babington
and Jonathan Oatis)
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