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Crude oil prices edged higher on Friday amid rising tensions in the Middle East

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Crude oil prices rose sharply on Friday, adding about 2% during the Asian session, after a US warship destroyed an Iranian drone in the Strait of Hormuz, rising again the tension in the Middle East.

However, during the day, the gains were limited. The US light WTI oil added 0.9% to 55.80 USD per barrel, while the Brent variety gained 1.36% to 62.77 USD per barrel. However, WTI and Brent are about to send the week with a drop in their prices of 6% and 5%, respectively.

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The indications that the US Federal Reserve will cut interest rates to support the economy are also somewhat behind Friday’s oil price rises.

Overall, however, the bearish sentiment about oil is growing in the long-term.

The International Energy Agency (IEA) cut its forecast for oil demand for 2019 due to the slowdown in the global economy amid the US-China trade war. This was announced by the executive director of the agency, Fatih Birol. The IEA has revised its forecast for global oil demand for 2019 to 1.1 million barrels per day and may reduce it again if the world economy and China in particular show continued weakness.

Last year, the agency predicted that demand for oil in 2019 would grow by 1.5 million barrels per day, but last month, the review was revised to 1.2 million barrels per day.

The IEA is not expecting oil prices to rise significantly, as demand is slowing down and oversupply in markets.

However, the agency considers that India could cut its imports against the backdrop of rising domestic demand while boosting local oil and gas production. In 2015, Indian Prime Minister Narendra Modi set the goal of lowering the country’s dependence on oil imports to two-thirds of consumption in 2022 and by half by 2030. But rising demand and weak domestic production increased imports by 84% over the past 5 years.

US oil inventories

The federal government’s EIA report revealed that crude inventories fell by 3.1 million barrels for the week ending Jul 12, which is 1.1 million barrels lower than what energy analysts had expected. Production shut-in and loss of imports forced by Hurricane Barry led to the stockpile draw with the world’s biggest oil consumer even as lower refinery crude runs capped the decline.

The latest report also showed that supplies at the Cushing terminal in Oklahoma (the key delivery hub for US crude futures traded on the New York Mercantile Exchange) was down 1.4 million barrels to 50.8 million barrels.

The crude supply cover was down from 26.5 days in the previous week to 26.3 days. In the year-ago period, the supply cover was 23.4 days.

Followed four consecutive weeks of declines, gasoline supplies rose 3.6 million barrels. The build – contrary to the polled number of 1.5 million barrels drawdown – came on account of weaker demand for the fuel, which was down 540,000 barrels per day. At 232.8 million barrels, the current stock of the most widely used petroleum product is still 1.3% below the year-earlier level but exceeds the five-year average range by 2%.

Distillate fuel supplies (including diesel and heating oil) jumped 5.7 million barrels last week on strong production, while analysts were looking for an inventory climb of just 300,000 barrels. Current supplies – at 136.2 million barrels – are 12.3% higher than the year-ago level though stocks remain 2% below than the five-year average.

US oil rig count

The combined US oil and natural gas rig count dropped by one week on week to 1,039, according to S&P Global Analytics data Thursday, the lowest figure since the first week of 2018.

Oil-directed rigs totalled 833, up by 5, while gas-oriented rigs fell by six to 203.

That is a reversal of the week before, when oil rigs fell by 20 and gas rigs rose by four.

The biggest rig movement was posted in the Permian Basin of West Texas/New Mexico, where the count fell by five rigs to a total of 435.

Of the other seven named basins under scrutiny, most were unchanged or either fell by or rose by a rig, except for the Eagle Ford Shale of South Texas, where the count fell by two rigs to 80.