---

South China Sea dispute, bearish oil stocks (Brent: $47.6)

After an intraday increase, oil prices tumbled last night on surprise build in U.S. oil inventories.

Dispute over South China Sea contributed to the jump in oil prices yesterday as China was found in breach of sovereign rights of the Philippines. China rejected the ruling (UN tribunal in the Hague) on fears of a potential blocking of the major shipping lane.

Last night, the weekly oil stocks report from the American Petroleum Institute showed a surprise 2.2 mio. barrel-build in crude, builds in gasoline (1.5 mio.) and distillates (2.6 mio. barrels) as well. Now all eyes will be on this afternoon's EIA oil inventory report (16.30 CET) where a draw of almost 3 mio. barrels of crude is expected.

OPEC's monthly report was published yesterday; the organization among others stated that it expects global demand for OPEC oil to increase above supply levels in 2017; global demand increase will be around 1.15 mio. barrels per day in 2017. Non-OPEC supply could drop by 800,000 bpd in 2016. OPEC also pointed at a potential slowing demand after the Brexit vote due to increased uncertainty and concerns. This is in line with the IMF which cut economic growth outlook for the same reason.

The U.S. Energy Information Administration (EIA) yesterday in its monthly outlook cut its world oil demand growth forecast for 2016 by 10,000 barrels per day to 1.44 mio. barrels per day increase; it also increased growth estimates for next year to 1.49 mio. barrels per day (up 20,000 bpd). As regards U.S. oil production, crude oil is expected to be around 8.61 mio.bpd ( up from 8.60 mio. bpd. in previous reports) in 2016, declining to 8.20 mio. bpd in 2017.

Later today, Chinese June trade and oil data will be released along with European industrial production. In a speech yesterday, the Bank of England Governor Carney indicated that economic stimulus could be on its way stating that "If the Outlook has worsened, there always could be moneary response." Tomorrow, the bank's interest rated decision and meeting minutes will be published. Today, the new Prime Minister, Theresa May, will be appointed.

All in all, looks like we are in for (another) volatile day in the oil markets, happy Wednesday!