Oil drops after US President Trump threatens new China trade tariffs

CNBC

  • Oil prices fell along with equities as U.S. President Trump’s threat of new tariffs on China reignited fears of a trade war between the world’s two biggest economies.
  • While oil market watchers were wary of the brewing trade war, they did not expect to see steep falls amid signs of tightening supplies.

Oil jack pumps in the Kern River oil field in Bakersfield, California.

Jonathan Alcorn | Reuters
Oil jack pumps in the Kern River oil field in Bakersfield, California.

Oil prices fell on Friday after U.S. President Donald Trump’s threat of new tariffs on China reignited fears of a trade war between the world’s two biggest economies.

President Trump said on Thursday he had ordered U.S. trade officials to consider tariffs on $100 billion more of imports from China, escalating tensions with Beijing.

Brent crude for June delivery was down 32 cents, or 0.5 percent, at $68.01 per barrel at 0410 GMT.

U.S. West Texas Intermediate crude for May delivery was down 35 cents, or 0.6 percent, at 63.19 a barrel.

Shanghai September crude futures were untraded due to public holidays in China, after falling 0.8 percent on Wednesday. Shanghai trading will resume on Monday.

While oil market watchers were wary of the brewing trade war between the United States and China, they did not expect to see steep falls amid signs of tightening supplies.

“As the escalating trade tensions continue to weigh on the commodity sector, we view the oil market as the best sector in which to wait out the volatility,” analysts at ANZ bank said in a note. “Supply-side issues amid a backdrop of falling inventories should override any concern over weaker economic growth.”

The Energy Information Administration reported a 4.6 million-barrel draw in U.S. crude inventories last week, compared with analysts’ expectations for an increase of 246,000 barrels.

“U.S. oil inventories remain a volatile gauge, but they still provide a good litmus test for the short-term,” said Stephen Innes, head of trading for the Asia-Pacific region at futures brokerage OANDA in Singapore.

Meanwhile, Saudi Arabia said on Thursday it would raise its official selling price for May crude for Asian customers.

The Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia are committed to cutting output by around 1.8 million barrels per day through the end of 2018 in a bid to clear a global overhang and support prices.

Saudi Arabia, the de facto leader of the oil cartel, has said production cuts could be extended in one form or another.

OPEC and its allies should keep the cuts to ensure healthy price levels as a way to boost investment in the industry and avoid a supply and price shock in the long run, Qatar’s Energy Minister Mohammed al-Sada told Reuters.

Oil gains on US crude drawdown, easing of tension in US-China spat

CNBC

  • Oil prices rose on Thursday, buoyed by the U.S.government data showing a surprise drawdown in crude stockpiles.
  • Oil also got support from firm global equities, as the U.S. expressed willingness to negotiate a resolution on trade.

An oil pump jack in Gonzales, Texas.

Getty Images
An oil pump jack in Gonzales, Texas.

Oil prices rose on Thursday, buoyed by the U.S.government data showing a surprise drawdown in crude stockpiles and an easing of tensions over a trade row between the United States and China.

U.S. West Texas Intermediate crude for May delivery was up 27 cents, or 0.4 percent, at $63.64 a barrel by 0445 GMT after settling down 14 cents.

Front-month London Brent crude for June delivery was up 30 cents, or 0.4 percent, at $68.32, having ended down 10 cents.

Oil also got support from firm global equities, as the United States expressed willingness to negotiate a resolution on trade after proposed U.S. tariffs on $50 billion in Chinese goods prompted a quick response from Beijing that it would retaliate by targeting key American imports.

Oil prices have recently closely tracked equities.

“The two countries are using discretion in their actions, and it does not look like the situation is developing into a full-scale trade war yet,” said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo. “There is also hope for dialogue.”

Before the rebound late on Wednesday, after the release of the Energy Information Administration inventory data, WTI and Brent had hit two-week lows after China proposed a broad range of tariffs on U.S. exports, feeding fears of a trade war.

U.S. crude inventories fell by 4.6 million barrels last week, compared with analysts’ expectations for an increase of 246,000 barrels, EIA data showed on Wednesday.

Oil has also received support after a Reuters survey showed on Wednesday that OPEC oil output fell in March to an 11-month low due to declining Angolan exports, Libyan outages and a further slide in Venezuelan output.

Shanghai crude futures trading was closed on Thursday due to a public holiday in China. Trading will resume on Monday.

China is reportedly taking the first steps to pay for oil in yuan: Sources

CNBC

  • Annual trade in oil worth an estimated $14 trillion
  • Pilot could be launched as early as the second half of 2018
  • Beijing could start with crude purchases from Russia, Angola

Employees close a valve of a pipe at a PetroChina refinery in Lanzhou, Gansu province.

Stringer | Reuters
Employees close a valve of a pipe at a PetroChina refinery in Lanzhou, Gansu province.

China is taking its first steps towards paying for imported crude oil in yuan instead of the U.S. dollar, three people with knowledge of the matter told Reuters, a key development in Beijing’s efforts to establish its currency internationally.

Shifting just part of global oil trade into the yuan is potentially huge. Oil is the world’s most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China’s gross domestic product last year.

A pilot program for yuan payment could be launched as early as the second half of this year, two of the people said.

Regulators have informally asked a handful of financial institutions to prepare for pricing China’s crude imports in the yuan, said the three sources at some of the financial firms.

“Being the biggest buyer of oil, it’s only natural for China to push for the usage of yuan for payment settlement. This will also improve the yuan liquidity in the global market,” said one of the people briefed on the matter by Chinese authorities.

China is the world’s second-largest oil consumer and in 2017 overtook the United States as the biggest importer of crude oil. Its demand is a key determinant of global oil prices.

Under the plan being discussed, Beijing could possibly start with purchases from Russia and Angola, one of the people said, although the source had no details of anything in the works.

Both Russia and Angola, like China, are keen to break the dollar’s global dominance. They are also two of the top suppliers of crude oil to China, along with Saudi Arabia.

The move would mark a major step in reviving usage of the currency of the world’s second-largest economy for offshore payments after several years of on-again, off-again measures.

If successful, it could also trigger shifting other product payments to the yuan, including metals and mining raw materials.

All three sources, who spoke to Reuters on the condition that they not be named, said the plans were at early stages. Officials at some of China’s state oil companies said they had not heard of such plans.

Crude futures

The plans coincide with this week’s launch of the first Chinese crude oil futures in Shanghai, which many expect to become a third global price benchmark alongside Brent and West Texas Intermediate crude.

Shanghai’s new crude contract is traded in yuan.

Besides the potential of giving China more power over global oil prices, “this will help the Chinese government in its efforts to internationalize renminbi (yuan),” said Sushant Gupta, research director at energy consultancy Wood Mackenzie.

Unipec, trading arm of Asia’s largest refiner Sinopec , has already inked a first deal to import Middle East crude priced against the newly-launched Shanghai crude futures contract.

U.S. bank Goldman Sachs said in a note to clients this week that the success of Shanghai’s crude futures was “indirectly promoting the use of the Chinese currency.”

People’s Bank of China (PBOC), the country’s central bank, did not respond to a Reuters request for comment on the plan. The Ministry of Commerce (MOFCOM) also declined to comment.

Internationalization

China’s plan to use yuan to pay for oil comes amid a more than year-long gradual strengthening of the currency, which looks set to post a fifth straight quarterly gain, its longest winning streak since 2013.

The yuan retained its No.5 ranking as a domestic and global payment currency in January this year, unmoved from a year ago, but its share among other currencies fell to 1.7 percent from 2.5 percent, according to industry tracker SWIFT.

A slew of measures put in place in the last 1-1/2 years to rein in capital flowing out of the country amid a slide in yuan value has taken off some its shine as a global payment currency.

But the yuan has now appreciated 3.4 percent against the dollar so far this year, with solid gains in recent sessions.

“For PBOC and other regulators, internationalization of the yuan is clearly one of the priorities now, and if this plan goes off smoothly then they can start thinking about replicating this model for other commodities purchases,” said the person briefed on the matter.

It would not be easy, however, for China to shift the bulk of its commodity purchases to the yuan because of the currency’s illiquidity in forex markets.

Nearly 90 percent of all transactions in the $5 trillion-a-day currency markets involve the dollar on one side of a trade, while only 4 percent use the yuan, as per a triennial forex survey by the Bank for International Settlements.

MOVES-China’s Rongsheng hires crude oil trader in Singapore

December 5, 2017
Reuters Staff

SINGAPORE, Dec 5 (Reuters) – Chinese conglomerate Zhejiang Rongsheng Holding Group has hired a senior crude oil trader to be based in its Singapore office, a company official said on Tuesday.

Trader Ray Liu, formerly from BB Energy and Sinochem Corp, will join Rongsheng International Trading Co in January, said the official who declined to be named.

Rongsheng plans to start up its 400,000-barrels-per-day refinery-petrochemical project in eastern China in late 2018.

The company set up a trading office in Singapore last year which will handle crude purchases as well as the trading of oil products and petrochemicals.

Rongsheng is looking to hire more crude and oil products traders as it plans to expand operations in Singapore, the official said.

Chinese companies agree to develop LNG in Alaska as Trump visits

CNBC

  • Three major Chinese companies agreed to develop Alaska’s liquefied natural gas sector
  • The deal comes during President Donald Trump’s state visit to Beijing

China’s top state oil major Sinopec, one of the country’s top banks and its sovereign wealth fund have agreed to help develop Alaska’sliquefied natural gas sector as part of President Donald Trump’s visit, the U.S. government said on Thursday.

Alaska Gasline Development, the State of Alaska, Sinopec, China Investment Corp and the Bank of China have signed an agreement to advance LNG in Alaska, the U.S. government said in an email.

A full moon helps illuminate an Alaskan pipeline under the faint glow of the Aurora Borealis on November 19, 2002 near Milne Point, Alaska.

Greg A. Syverson/Getty Images
A full moon helps illuminate an Alaskan pipeline under the faint glow of the Aurora Borealis on November 19, 2002 near Milne Point, Alaska.

The agreement will involve investment of up to $43 billion, create up to 12,000 U.S. jobs during construction, reduce the trade deficit between the United States and Asia by $10 billion a year, and give China clean energy, it said.

There were no other details. AGDC is building a gas treatment plant, an 800-mile (1,287 km) pipeline to south central Alaska for in-state use, and a liquefaction plant in Nikiski to produce up to 20 million tons of LNG per year for export.

China, the world’s third-largest gas buyer, is importing more LNG as the government tries to wean the country off dirty coal as part of its push to clear the skies, while the United States wants to sell more of its excess gas abroad.