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.

US oil prices rise to two-year high on Keystone pipeline outage

CNBC

  • U.S. crude oil hit fresh two-year highs on Friday
  • The closure of the 590,000 barrels per day (bpd) Keystone pipeline following a spill last week has helped drive up U.S. crude
  • Markets have also been tightening due to an OPEC-led effort to withhold 1.8 million bpd of production
  • OPEC will meet on Nov. 30 to discuss its policy

An oil pump jack in the oil town of Gonzales, Texas.

Getty Images
An oil pump jack in the oil town of Gonzales, Texas.

U.S. crude oil rose to a two-year high on Friday, as the shutdown of a major crude pipeline from Canada to the United States tightened North American markets.

Trading activity is expected to be very low on Friday due to the U.S. Thanksgiving holiday.

U.S. West Texas Intermediate (WTI) crude futures were at $58.44 a barrel at 0550 GMT, up 42 cents, or 0.7 percent from their last settlement. Price rose to as much as $58.58 a barrel early on Friday, the highest since July 1, 2015.

Brent crude futures were at $63.42, down 13 cents.

In a sign of a tightening market, both crude benchmarks are in backwardation, where spot prices are higher than those for future delivery, which makes it unattractive for traders to store oil for later sale.

The closure of the 590,000-barrel-per-day (bpd) Keystone pipeline following a spill last week has driven up U.S. crude as stockpiles at the storage hub of Cushing, Oklahoma, have declined, traders said.

Markets have also been tightening globally due to an effort by the Organization of the Petroleum Exporting Countries (OPEC) and a group of other producers, including Russia, to withhold 1.8 million bpd of production.

The deal to restrict output expires in March 2018, but OPEC will meet on Nov. 30 to discuss its policy, and it is expected to extend the cuts.

“The agenda for the OPEC meeting is out and it’s only a 3-hour meeting. That suggests that a broad consensus has been built and the meeting is really just a rubber stamp to agree the extension of the Saudis’ favored 9-month extension period,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader, in a note on Friday.

Despite this expectation, McKenna said there was a slight risk of the collaboration derailing.
“Imagine though if all the tensions in the Middle East, between the Saudis and Iranians and between other Gulf states and Qatar, somehow derail the meeting. It’s a low probability, high-impact possibility,” he said.

RBC’s Helima Croft on her oil outlook

RBC’s Helima Croft on her oil outlook  

Overall, however, analysts said market fundamentals were balanced, supporting prices.

“Oil market fundamentals are improving with… robust global demand growth of around 1.7 percent this year,” U.S. investment bank Jefferies said.

“Growth in U.S. output of 900,000 bpd this year (and in 2018) should not overwhelm the market,” it added.

U.S. oil production has jumped by 15 percent since mid-2016 to a record 9.66 million bpd, thanks largely to shale drilling.

The increased production is likely to translate into higher exports, especially to Asia.

China’s Unipec, the trading arm of Asia’s largest oil refiner Sinopec, said on Friday that it would double the volume of crude oil it imports from the U.S. to around 12 million tonnes next year.

But Richard Robinson, manager of the Ashburton Global Energy Fund, warned U.S. output growth could slow as operators struggle to get enough sand and water, both of which are needed in the shale production process, known as fracking.

“Logistics are a big bottleneck,” he said.