"Supply setbacks will push oil price higher."

FT: “A possible resumption of oil exports from Libya, as yet unhindered production in Iraq, and hopes of a nuclear deal with Iran, have caught the oil market on the hop.”
“It was only a month ago that Brent, the international crude oil marker, rose to more than $115 a barrel amid fears of a disruption to oil supplies as insurgents swept across northern Iraq. But these anxieties soon dissipated and oil has been in freefall.
This week Brent suffered its biggest one day percentage drop since January, triggering a scramble to unwind positions that took the price to a low of $104 a barrel. Traders are now asking whether the rapid sell-off is over or has further to run.
….“Those looking for a tight crude market this summer . . . have so far been let down by reality,” Citi analysts say in the bank’s third-quarter energy outlook.
But for how much longer?
While the crude price may remain on a downward trend for another few weeks yet as the supply overhang persists, particularly in the west African market and the North Sea, it is likely to tick back higher longer term, according to Amrita Sen at Energy Aspects.
ICE September Brent rose 0.6 per cent to $107.84 on Thursday, while Nymex Spetember WTI traded 1.3 per cent higher at $102.57.
David Wech, analyst at JBC Energy, echoes this sentiment: “We expect gas oil/diesel demand to be higher by 600,000 b/d over the next five months compared to the March to July period.”
He adds: “This reflects largely seasonal factors – summer travelling, agriculture harvesting season and buying for [the] upcoming winter.”
In its closely followed monthly report, the International Energy Agency says global refinery throughputs already appeared to be rebounding, buoyed in part by record runs in Russia, capacity increases in Saudi Arabia and a return from unplanned outages in the US.
On top of that, many traders are sceptical about Libya’s efforts to bring back a significant portion of its lost production. Before its civil war, the country was producing about 1.4m b/d.
….And not all industry watchers are convinced Iraqi oil production can be maintained at current levels.
“You have got to worry here,” says Jan Stuart, head of oil markets research at Credit Suisse. “Think, if there are fewer people on the ground managing oilfields [as many foreign workers have been evacuated] it is only a matter of time before flows will decline.”
….Separately, while some analysts stress the positives of the talks with Iran over its nuclear programme, recent comments from the US secretary of state John Kerry suggest there are still major differences between the parties.
….Indeed, “extraordinarily high” supply risks in the Middle East and north Africa were cited by the IEA as one reason oil prices were likely to recover from recent weakness.”