Oil slips after survey on OPEC's compliance to output deal

Crude oil futures were lower during mid-morning trade in Asia Tuesday following a survey that showed that OPEC compliance to its production cut deal was lower in June, while market participants continue to watch out for ongoing geopolitical tensions in the Middle East.

OPEC's compliance with its production quotas fell sharply in June, as output gains in the month by Saudi Arabia and Nigeria, along with Iraq's continued flouting of its cap, shrank the bloc's margin for remaining within the bounds of its supply cut agreement, according to an S&P Global Platts survey of industry officials, analysts and shipping data.

OPEC as a whole pumped 30.09 million b/d, steady from May, the survey found, although much of the month's decline came from exempt Iran and Libya, and were offset by the Saudi and Nigerian surges, leading to the lower compliance rate.

OPEC and 10 non-OPEC allies, led by Russia, last week extended their 1.2 million b/d production cut agreement through March 2020, as they aim to prop up oil prices.

"Crude price movements were limited ahead of key energy reports," said UOB Bank's said in a note Tuesday.

OPEC's monthly Oil Market report is due for release on Thursday, while the International Energy Agency will release its monthly oil report on Friday.

Meanwhile, ongoing tensions in the Middle East continued to grab market attention, analysts said.

A crude shipment on a British-flagged tanker owned by BP has been canceled after escalating tensions between the UK and Iran, according to shipping sources.

The British Heritage, a Suezmax tanker was chartered by Shell last week to load a 140,000 mt crude cargo at Basrah for delivery to Northwest Europe or the Mediterranean. However, industry sources told Platts Monday that this shipment has now been canceled.

Last week, the Gibraltar government said it had seized the VLCC Grace 1, which it alleged was taking crude from Iran to Syria in breach of EU sanctions. Following this incident, a senior Iranian official said Iran should arrest a British tanker in retaliation.

"Oil shipments are being diverted or delayed, as risks for tanker attacks have increased. Investors are worried about production outages in the region and this risk premium is reflected in the prices," ANZ analysts said in a note Tuesday.

Elsewhere, analysts surveyed Monday by Platts were looking for US crude stocks for the week ended July 5 to have declined by 4.2 million barrels to 464.3 million barrels.

Total distillate inventories were expected to have edged 1.4 million barrels higher last week to 128.2 million barrels, while US gasoline inventories were expected to have reduced by 1.2 million barrels to 229.4 million barrels.

Preliminary data on last week's US inventory levels is due for release from the American Petroleum Institute later Tuesday, while the more definitive numbers from the US Energy information Administration later Wednesday.