Oil ticks higher as Saudi Arabia clips production

Oil futures held small gains Tuesday after Saudi Arabia said it had cut production in July, on top of market expectations for lighter Iranian output.

Saudi Arabia told the Organization of the Petroleum Exporting Countries that it had reduced crude output by 200,000 barrels per day to 10.29 million bpd in July. OPEC itself, using secondary sources, estimated in a report published on Monday that Saudi production was at a slightly higher level of 10.39 million bpd last month.

The reports suggest the kingdom, which is de facto leader of OPEC and the cartel’s largest producer, wants to avoid a repeat of a global supply glut that has depressed prices over the past few years. OPEC said Monday, in its closely watched monthly oil market report, that its output overall rose in July by around 41,000 barrels a day.

The U.S. benchmark, West Texas Intermediate crude for September delivery CLU8, -0.10%  on the New York Mercantile Exchange, was up 8 cents, or 0.1%, at $67.28 a barrel.

October Brent crude, the global benchmark LCOV8, -0.10%  was up 20 cents, or 0.3%, at $72.81 a barrel on the ICE Europe exchange.

The lower Saudi output comes at a time of expected export declines from Iran as the U.S. revives sanctions. Last week, the International Energy Agency said renewed sanctions against Iran could create supply problems later in the year.

“Since mid-July, the front month Brent crude oil contract has been caught in a $72 a barrel to $75 a barrel range in a tug of war between short term bearish weaknesses and medium-term bullish Iran sanctions kicking in on November 4,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets.

The oil cartel also lowered its demand outlook for this year and next. Oil demand growth in 2018 should now increase by 1.64 million barrels a day, while rising by 1.43 million barrels a day next year—both roughly 20,000 barrels a day lower than initial projections.

Saudi Arabia’s and Iran’s developments have also put new attention on what contributions non-OPEC producers, including the U.S., might make to the global markets. Total Russian oil output, meanwhile, rose by around 20,000 barrels a day in July, to average 11.27 million barrels a day, OPEC said.

Oil market observers are looking ahead Tuesday to weekly U.S. oil inventory data from the American Petroleum Institute, an industry group.

Oil futures ended off session lows Monday after tumbling sharply on expectations for an increase in crude stocks at the delivery hub for U.S. futures.

Monday’s initial tumble came after Genscape, a market intelligence firm, predicted a rise in inventories at the Cushing, Okla., delivery hub for Nymex crude futures. Official Energy Information Administration data are due Wednesday morning.

Also, Turkey’s currency crisis appeared to put some indirect pressure on U.S. oil futures Monday, with analysts tying modest weakness partly to a stronger dollar, and these outside influences could continue to impact oil trading. The lira stabilized somewhat Tuesday and the U.S. dollar index DXY, +0.47%  was little changed at 96.29.

In other energy trading, September gasoline RBU8, +1.00%  rose 1.1% to $2.0364 a gallon, while September heating oil HOU8, -0.32%  lost 0.1% to close at $2.1343 a gallon. September natural-gas futures NGU18, +1.16%  rose 1.3% to $2.967 per million British thermal units.

—Christopher Alessi contributed to this report.

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