Oil drops on concerns that US-China trade deal may not stoke demand

CNBC

Reuters
KEY POINTS
  • Oil prices slipped on Wednesday on concerns that the pending Phase 1 trade deal between the United States and China, the world’s biggest oil users, may not boost demand.
  • Brent crude was down 19 cents, or 0.3%, at $64.30 per barrel by 0428 GMT.
  • U.S. West Texas Intermediate crude futures were down 19 cents, or 0.3%, at $58.04 a barrel.
RT: Oilfield operated by ExxonMobil in Iraq 200109 - 106328286
A policeman is seen at West Qurna-1 oil field, which is operated by ExxonMobil, in Basra, Iraq January 9, 2020.
Essam al-Sudani | Reuters

Oil prices slipped on Wednesday on concerns that the pending Phase 1 trade deal between the United States and China, the world’s biggest oil users, may not boost demand as the U.S. intends to keep tariffs on Chinese goods until a second phase.

U.S. Treasury Secretary Steven Mnuchin said late on Tuesday that tariffs on Chinese goods will remain in place until the completion of a second phase of a U.S.-China trade agreement, even as both sides are expected to sign an interim deal later on Wednesday.

Brent crude was down 19 cents, or 0.3%, at $64.30 per barrel by 0428 GMT. U.S. West Texas Intermediate crude futures were down 19 cents, or 0.3%, at $58.04 a barrel.

“A pickup with global demand for crude may struggle as U.S.-Chinese tensions linger after some hardline stances from the Trump administration,” said Edward Moya, analyst at brokerage OANDA.

“Financial markets are disappointed that the Trump administration … signalled tariffs will remain in place until after the 2020 U.S. Presidential election, depending on whether China comes through on their promises with the phase-one agreement.”

U.S. President Donald Trump is slated to sign the Phase 1 agreement with Chinese Vice Premier Liu He at the White House on Wednesday. That agreement is expected to include provisions for China to buy up to $50 billion more in U.S. energy supplies.

Adding to worries over U.S.-China trade relations, the U.S. government is nearing publication of a rule that would vastly expand its powers to block shipments of foreign-made goods to Chinese technology giant Huawei, according to two sources.

Meanwhile, U.S. crude inventories rose by 1.1 million barrels, data from the American Petroleum Institute showed, countering expectations for a draw.

U.S. oil production is expected to rise to a record of 13.30 million barrels per day in 2020, mainly driven by higher output in the Permian region of Texas and New Mexico, the U.S. Energy Information Administration (EIA) said.

Oil prices rise ahead of trade deal, likely stock draw

CNBC

Reuters
KEY POINTS
  • Brent crude was up 16 cents, or 0.3%, at $64.36 per barrel by 0301 GMT after falling 1% on Monday. U.S. West Texas Intermediate crude futures were up 13 cents, or 0.2%, at $58.21 a barrel.
  • However, price gains were capped by receding Middle East tensions, with both Tehran and Washington desisting from any further escalation after this month’s clashes.
  • Elsewhere, Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said his country will work for oil market stability at a time of heightened U.S.-Iranian tension and wants to see sustainable prices and demand growth.
GP: Aramco oil facility Saudi Arabia 190719
Aramco oil facility near al-Khurj area, just south of the Saudi capital Riyadh on Sept. 15, 2019.
Fayez Nureldine | AFP | Getty Images

Oil prices edged higher on Tuesday as investors focused on the signing of a preliminary trade deal between the United States and China, the world’s top oil consumers, and on expectations of a drawdown in U.S. crude oil inventories.

However, price gains were capped by receding Middle East tensions, with both Tehran and Washington desisting from any further escalation after this month’s clashes.

Brent crude was up 16 cents, or 0.3%, at $64.36 per barrel by 0301 GMT after falling 1% on Monday. U.S. West Texas Intermediate crude futures were up 13 cents, or 0.2%, at $58.21 a barrel.

“Oil prices are modestly rebounding, following four days of intense selling,” said Edward Moya, analyst at brokerage OANDA, pointing to trade-deal optimism and fading concerns over the U.S.-Iran conflict.

“Oil prices are tentatively rebounding after seller exhaustion kicked in as investors await the next developments on the trade front and as earnings season begins.”

Oil prices were supported ahead of the signing at the White House on Wednesday of a Phase 1 trade deal, which marks a major step in ending a dispute that has cut global growth and dented demand for oil.

Still, with traders already pricing in the signing of the deal, there is more downside risk to prices, said Michael McCarthy, chief market strategist at CMC Markets.

“Regardless whether the deal is signed, we might have a buy the rumours, sell the fact scenario unfolding,” he added.

Separately, U.S. crude oil inventories were expected to have fallen last week, a preliminary Reuters poll showed on Monday, helping to boost prices.

The poll was conducted ahead of reports from the American Petroleum Institute (API), an industry group, and the Energy Information Administration (EIA), an agency of the U.S. Department of Energy.

China’s crude oil imports in 2019 grew by nearly 10 percent from the previous year on demand growth from new mega-refineries, customs data showed.

Elsewhere, Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said his country will work for oil market stability at a time of heightened U.S.-Iranian tension and wants to see sustainable prices and demand growth.

Oil prices surged to their highest in almost four months after a U.S. drone strike killed an Iranian commander on Jan. 3 and Iran retaliated with missiles launched against U.S. bases in Iraq. But they slumped again as Washington and Tehran retreated from the brink of direct conflict last week.

Prince Abdulaziz said it was too early to talk about whether the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, would continue with production curbs set to expire in March.

Oil prices surge 4% at high following attacks on Iraq bases

KEY POINTS
  • Oil prices surged more than 4% at their high after Pentagon officials said that Iran launched more than a dozen ballistic missiles against multiple bases in Iraq housing U.S. troops.
  • U.S. West Texas Intermediate crude futures hit $65.65, its highest level since April, while international benchmark Brent crude reached $71.75 per barrel, its highest level since September.
  • “I think traders fully anticipated a retaliation, but not on U.S. troops, which leads traders to fear the next move by the U.S. might be a strike back within Iran, which could open a whole other can of worms,” Tudor, Pickering, Holt & Co. managing director Michael Bradley said.

Oil prices surged more than 4% at their high in early trading on Tuesday night after Pentagon officials said that Iran launched more than a dozen ballistic missiles against multiple bases in Iraq housing U.S. troops.

U.S. West Texas Intermediate crude futures spiked 4.5%, or $2.85, to a session high of $65.65, its highest level since April, before pulling back to $64.11. International benchmark Brent crude rose more than 4% to a session high of $71.75 per barrel, its highest since September, before pulling back to $69.86.

“I think traders fully anticipated a retaliation, but not on U.S. troops, which leads traders to fear the next move by the U.S. might be a strike back within Iran, which could open a whole other can of worms,” Tudor, Pickering, Holt & Co. managing director Michael Bradley said. “Where markets go within the next 48 hours will now depend on the U.S. response,” he added.

U.S. stock futures plunged on Tuesday night, with the Dow Jones Industrial Average futures dropping more than 400 points at the low, indicating a loss greater than 300 points at Wednesday’s open. S&P 500 and Nasdaq 100 futures pointed to losses of at least 1%.

“At approximately 5:30 p.m. (EST) on January 7, Iran launched more than a dozen ballistic missiles against U.S. military and coalition forces in Iraq. It is clear that these missiles were launched from Iran and targeted at least two Iraqi military bases hosting U.S. military and coalition personnel at Al-Assad and Irbil. We are working on initial battle damage assessments,” Assistant to the Secretary of Defense for Public Affairs Jonathan Hoffman said in a statement. “We are working on initial battle damage assessments.”

“The idea that Iran might wait or even not retaliate has been disabused,” Again Capital’s John Kilduff said Tuesday. “Oil now must wait out any reports of American casualties, which should then invite a fulsome U.S. response.”

He added that WTI could “easily be above $70” by morning.

Following reports of the attacks, White House press Secretary Stephanie Grisham said President Donald Trump “has been briefed and is monitoring the situation closely and consulting with his national security team.”

Tuesday’s attack comes as tensions between the United States and Iran have been building, following Thursday’s airstrike that killed Iran’s top commander Qasem Soleimani.

On Friday oil prices surged more than 3% as the Street digested possible forms of Iranian retaliation, which some said could include targeting oil production facilities in Iraq or Saudi Arabia. But by Monday fears appeared to have subsided, and oil settled little changed after initially rising more than 2%. On Tuesday, prices slid about 1%.

“My initial thought is this that the 3% move brings Brent slightly above where it traded following the air strike on Gen. Soleimani, which was faded over the past two days. The price action is reflective of ongoing geopolitical uncertainty, but not panic,” Rebecca Babin, senior energy trader at CIBC Private Wealth Management said. “The crude market response tells me the market is comfortable with current spare capacity. If Iraq’s production comes into play as this progresses it will be a very different reaction.”

Oil tumbles as investors rethink Mideast disruption risk

Reuters

SINGAPORE (Reuters) – Oil prices on Tuesday surrendered some gains made over the previous two days as investors reconsidered the likelihood of Middle East supply disruptions in the wake of the United States killing a top Iranian military commander.

Brent crude LCOc1 fell as much as 1.5% to $67.86 a barrel and was at $68.39, down 52 cents, at 0737 GMT. U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $62.85, down 42 cents, after earlier dropping 1.5% to an intra-day low of $62.30.

Prices surged during the previous two sessions, with Brent reaching its highest since September while WTI rose to the most since April. The gains followed fears of escalating conflict and potential Middle East supply disruptions after the Jan. 3 drone strike in Baghdad that killed Iran’s Qassem Soleimani. But, some analysts have tempered expectations for a widespread conflict.

“The market’s clearly worried about the potential for supply disruption but there’s no obvious path forward from here,” said Lachlan Shaw, head of commodity research at National Australia Bank.

“It’s all a matter of scenarios that may impact oil production or not, so the market seems to have recalibrated in the last 24 to 36 hours on some of those likelihoods.”

He added that Iran will need foreign currency earnings from continued oil exports and it will be counter to their interest if they try to block the Straits of Hormuz. Roughly 20% of the world’s oil passes the Middle East waterway, which borders Iran.

Consultancy Eurasia Group said Iran is likely to focus more narrowly on U.S. military targets instead of energy targets.

“That’s not to say it won’t continue low-level harassment of commercial shipping or regional energy infrastructure but these activities will not be severe,” it added.

Prices fell despite higher compliance among the Organization of the Petroleum Exporting Countries (OPEC) on meeting production quota curbs aimed at reducing supply.

OPEC members pumped 29.50 million barrels per day (bpd) last month, down 50,000 bpd from November’s revised figure, according to a Reuters survey published on Monday.

“We still believe in the absence of retaliation or disruptions, that oil prices will trend lower over the course of 1Q20, with the market remaining well supplied over the first half of 2020,” ING analysts said in a note.

U.S. crude oil stockpiles likely dropped last week for a fourth week in a row as exports ramped up although refined products stocks were expected to rise, a Reuters poll showed on Monday.

Six analysts estimated, on average, that crude stocks fell by 4.1 million barrels in the week to Jan 3.

Even before Soleimani’s death, investors were increasing their bullish WTI holdings, with money managers raising their net-long positions in the week to Dec. 31, the Commodity Futures Trading Commission said on Monday.

Reporting by Florence Tan; Editing by Kenneth Maxwell and Christian Schmollinger

Oil prices jump 2% in early trading as tensions in the Middle East mount, Brent crude tops $70

Oil prices jumped more than 2% during Sunday night trading — building on Friday’s gains — as tensions in the Middle East escalated over the weekend.

Following Thursday’s death of top Iranian commander Qasem Soleimani, on Sunday an Iranian state-run television broadcast said that the nation would no longer respect uranium enrichment restrictions set forth in 2015′s nuclear deal.

International benchmark Brent crude gained 2.3% to trade at $70.18 per barrel, while U.S. West Texas Intermediate climbed 2.1% to $64.38 per barrel.

On Friday Brent hit a more than three month high of $69.50, before settling at $68.60. Meantime WTI rose to a session high of $64.09 — its highest level since April — before pulling back to settle at $63.05, for a gain of 3.06%.

Iran has vowed to retaliate against the U.S., and the form that this retaliation takes will determine oil’s next move, according to Wall Street analysts. For instance, if the nation targets production in Saudi Arabia or Iraq — OPEC’s two largest producers — prices could move higher for longer.

On Friday, Citi global head of commodity research Ed Morse said that Brent prices will top $70 in short order, while Again Capital’s John Kilduff said that if Iraq production takes a hit “oil prices will spike higher.”

Iraq is OPEC’s second largest oil producer, pumping around 4.6 million barrels per day in December. On Sunday the Iraqi parliament passed a resolution calling for an expulsion of foreign troops, which raises question about the future of the allied mission that has successfully fought the “Islamic State,” or ISIS, in recent years.

VIDEO03:02
Oil prices jump after US airstrike killed Iran top commander—Four experts on how it affects energy

Helima Croft, RBC’s global head of commodity research, noted that in the past a geopolitical event of this nature would have caused a larger spike in oil, which demonstrates how resilient prices have become to geopolitical tensions.

This resiliency was on display in September after drone attacks on Saudi Arabia’s oil facilities in Abqaiq and Khurais took an estimated 5.7 million barrels of oil offline. While oil initially spiked 8% and climbed higher, prices ultimately drifted back down and a few weeks later were back at pre-attack levels after Saudi Aramco quickly restored production.

But this time around prices could stay elevated for longer, given tight supply and a historically weak part of the year for oil.

On Friday Eurasia Group raised its 2020 high-end base case oil target to $75 per barrel, based on “rising risk to oil infrastructure in the region.” If conflict breaks out, which the firm’s Middle East and North Africa head of research Ayham Kamel places at 30% likelihood, prices could climb as high as $95.

Citi said that other possible retaliations could be “attacks on pipeline oil flows or shipping through either the Strait of Hormuz or the Red Sea,” through which more than a fifth of the world’s oil supply flows.

Thursday’s airstrike comes following an especially strong fourth quarter for oil, which saw OPEC+ announce deeper-than-expected production cuts in December, and as easing trade tensions led to upbeat outlooks for demand.

WTI gained 10.68% in December — its best month since January 2019 — and 12.93% for the quarter. It’s 34.46% gain for the year was its best since 2016. Brent gained 5.7% in December and 8.59% for the quarter. It also had its best year since 2016, gaining 22.68%.

Carter Braxton Worth from Cornerstone Macro said WTI looks set to reach $72 per barrel, and that investors should “embrace” the pop. “It will be right to play energy stocks on the long side in the weeks/months again,” he said in a note to clients Sunday.

That said, analysts at Morgan Stanley said that “any further escalation could keep oil prices supported in the short term,” but that any gains could be short lived. The firm said it sees Brent closer to $60 rather than $70 for the year given “an oversupplied oil market in 2020 as a whole.”

– CNBC’s Michael BloomAmanda Macias and Spencer Kimball contributed to this report.