Oil under pressure as traders eye inventory levels

Oil futures lost ground Thursday, unable to completely shake off a rise in U.S. crude inventories and a pickup in output by major oil producers.

September Brent crude futures LCOU8, -0.80% the global benchmark, fell 77 cents, or 1.1%, to $72.13 a barrel on ICE Europe. West Texas Intermediate crude for August delivery CLQ8, -0.60%  on the New York Mercantile Exchange shed 73 cents, or 1.1%, to $67.02 a barrel.

Oil futures on Wednesday shook off data that showed domestic crude supplies unexpectedly rose 5.8 million barrels last week to finish higher, buoyed by a larger-than-expected drop in gasoline inventories.

But traders said the rise in stockpiles combined with an increase in output by Saudi Arabia and other major producers, in line with an agreement struck in June, continued to limit upside for oil. Producers from the Organization of the Petroleum Exporting Countries and non-OPEC producers cut oil output in June by 20% more than agreed levels, compared with 47% in May, Reuters reported Wednesday.

In June, Saudi Arabia and Russia spearheaded efforts to boost output by around 1 million barrels a day, in part to make up for output expected to be lost from Iran following the U.S. decision to exit from a nuclear accord with Tehran and reimpose sanctions.

Analysts at JBC Energy in Vienna said there are also questions over how much crude China will absorb in the second half of the year above and beyond refinery requirements, “and by extension how much additional Chinese buying of Iranian crude could make up for any loss in exports to other countries.”

“China absorbed more than a third of all Asia-bound Iranian crude exports last year but for the country to absorb the balance potentially shut out of other countries would require up to 1 million [barrels a day] of crude from other sources to be backed out of the Chinese import slate. While this is certainly not impossible, it would represent a major undertaking,” they wrote.

In other energy trade, August gasoline futures RBQ8, -0.66%  fell 0.8% to $2.2076 a gallon, while August heating oil HOQ8, -0.66%  dropped 0.8% to $2.0733 a gallon. August natural gas NGQ18, +0.18%  rose 0.2% to $2.728 per million British thermal units.