Oil dips despite uncertainty about Saudi efforts to restore supply

Oil fell on signs Saudi Arabia is making progress in restoring output even as uncertainty remains about the kingdom’s ability to bring back all lost supply by the end of the month.

Futures dropped as much as 1.5% in New York after rising 1% on Monday. Saudi Aramco is returning most of its domestic oil refineries to full capacity after cutting back on processing to meet the crude demands of customers, according to people familiar with the matter. In the U.S., stockpiles probably shrank last week, a Bloomberg survey showed.

Oil is still headed for the biggest monthly gain since June following the attacks that took out 5% of global supply and spurred a record spike in prices. The U.S., France and the U.K. have all blamed Iran for the strikes; meanwhile America is moving more troops to Saudi Arabia. Yet the market is signaling that concerns of further regional instability have eased, according to PVM Oil Associates.

“It is surprising that fears of further attacks, either on Saudi Arabia or on its Middle East allies or retaliatory strikes on Iran, have subdued,” PVM analyst Tamas Varga wrote in a report. The geopolitical risk premium in crude is currently “curiously non-existent,” he said.

West Texas Intermediate for November delivery dropped 56 cents to $58.08 a barrel on the New York Mercantile Exchange at 9:08 a.m. local time.

Brent crude for November slipped 62 cents, or 1%, to $64.15 a barrel on the ICE Futures Europe Exchange. The global benchmark crude traded at a $5.99 premium to WTI.

State-run Saudi Aramco reduced refinery run rates by 1 million barrels a day after the attacks to make more crude available for export. The kingdom’s oil inventories are down 8.4% since the strike, according to Orbital Insight. Although domestic refineries are now ramping up again and Aramco has reiterated plans to restore oil output to pre-attack levels by the end of September, some analysts are skeptical that target can be reached.

In the U.S., crude stockpiles probably declined by 600,000 barrels last week, a Bloomberg survey showed. If confirmed by Energy Information Administration data on Wednesday, it would be the fifth weekly draw in six weeks.

Other oil-market news
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  • Norway’s oil production in August was 3.9% below the Norwegian Petroleum Directorate’s prognosis for the month.
  • French oil major Total SA will accelerate dividend growth in a sign of confidence that investment in fast-growing gas and electricity markets will steadily increase cash flow.

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