Oil rises as Saudi Arabia warns of OPEC production cuts

Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford

Aug 23 (Reuters) – Oil rose on Tuesday as renewed concerns about tight supplies dominated market sentiment after Saudi Arabia warned the major oil producer could cut production to correct a recent drop in oil prices.

Brent crude was up 42 cents, or 0.4%, at $96.90 a barrel by 0630 GMT, after a choppy session on Monday when it fell more than $4 before paring losses to trade almost flat. It rose by $1 a barrel in early Asia trading.

US West Texas Intermediate crude futures rose 40 cents, or 0.4%, to $90.76 a barrel.

Benchmarks are down around 12% and 8% this month, respectively, on fears of a global recession and fuel demand.

The Organization of the Petroleum Exporting Countries is ready to cut output to correct the recent drop in oil prices driven by poor liquidity in the futures market and macroeconomic fears, which have ignored extremely tight physical crude supplies, OPEC chief Saudi Arabia said on Monday. read more

Saudi Arabia’s state news agency SPA quoted Saudi Energy Minister Prince Abdulaziz bin Salman as telling Bloomberg that OPEC+ has the means and flexibility to deal with challenges.

With Saudi Arabia standing out to defend prices, the market is likely to take the chance to build long positions, Haitong Futures analysts said, adding that the outcome of the Iran nuclear deal remains a major uncertainty.

Iran accused the United States on Monday of stalling in trying to revive Tehran’s 2015 nuclear deal – a charge rejected by Washington, which said a deal was closer than two weeks ago because of apparent Iranian flexibility. read more

Meanwhile, Europe is facing fresh disruptions to energy supplies due to damage to a pipeline system that brings oil from Kazakhstan through Russia, raising concerns about a plunge in gas supplies. read more

The current tight demand is underscored by US crude stocks in the Strategic Petroleum Reserve (SPR) at their lowest level in more than 35 years, Yeap Jun Rong, market strategist at IG Group, said in a note.

As for US supply, market participants await industry data due at 4:30 PM ET on Tuesday. U.S. inventories of crude oil and gasoline likely fell last week, while distillate stockpiles rose, a preliminary Reuters poll showed on Monday.

Reporting by Stephanie Kelly and Muyu Xu; Editing by Himani Sarkar, Jacqueline Wong and Simon Cameron-Moore

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