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

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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.
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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 steady on easing US-Iran tensions, eyes on China trade deal

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Reuters
KEY POINTS
  • Brent crude was down 2 cents at $64.96 per barrel at 0438 GMT, while West Texas Intermediate (WTI) was up 3 cents at $59.07 a barrel from the previous session.
  • Oil prices had surged after the killing of an Iranian commander by a U.S. drone strike and the launch of Iranian missiles in retaliation, but then slumped as the United States and Iran stepped back from the brink of direct conflict.
  • Meanwhile, expectations of thawing trade tensions between the United States and China, the world’s two biggest oil consumers, have offered support for prices.
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A damaged installation in Saudi Arabia’s Abqaiq oil processing plant is pictured on September 20, 2019.
Fayez Nureldine | AFP | Getty Images

Oil prices held steady on Monday as fears of conflict between the United States and Iran eased, with investors shifting their focus to this week’s scheduled signing of an initial U.S.-China trade deal, which could boost economic growth and demand.

Brent crude was down 2 cents at $64.96 per barrel at 0438 GMT, while West Texas Intermediate (WTI) was up 3 cents at $59.07 a barrel from the previous session.

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

Global benchmark Brent touched $71.75 per barrel last week before ending on Friday below $65.

“The possibility of the war between the United States and Iran has disappeared … For the week, the signing of the U.S.-China trade deal would lift oil prices on expectations for higher demand,” said Kim Kwang-rae, a commodities analyst at Samsung Futures in Seoul.

Backwardation in Brent, a market structure where prices for near-term contracts are higher than those for later contracts, is currently at 72 cents per barrel, from 84 cent a week earlier, whereas the WTI backwardation is at 4 cents a barrel from 23 cents last week.

Backwardation tends to reflect tightening supplies, and the narrowing of the values indicate that worries over supply disruption are receding.

“The fundamentals for WTI remain weak for the coming months and stocks are expected to build at Cushing,” said Virendra Chauhan, an oil analyst at Energy Aspects in Singapore.

“For Brent, which is a broader indicator of the global crude market, it is a combination of supply and demand,” he added.

“Sentiment appears to have turned a corner on the trade-war front, while some green shoots regarding industrial activity and the start of fiscal stimulus, could mean demand surprised to the upside.”

A U.S.-China trade deal is due to be signed in Washington on Wednesday.

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 steady amid optimism U.S.-China close to signing trade deal

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Reuters
KEY POINTS
  • Oil prices were mostly steady on Monday after three weeks of gains.
  • U.S. drillers may be anticipating higher prices as well and last week increased the number of their oil rigs by the most in a week since February 2018.
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A general view of the Novokuibyshev Refinery owned by Rosneft oil company on March 15, 2012 in Novokuibyshevsk, Samara region, Russia.
Sasha Mordovets | Getty Images

Oil prices were mostly steady on Monday after three weeks of gains amid optimism the United States and China were close to signing a trade deal to end a tariff war, with President Donald Trump saying an agreement would be signed “very shortly.”

Brent crude was down 4 cents at $66.10 a barrel by 0100 GMT. West Texas Intermediate was also down 4 cents at $60.40 a barrel.

A so-called phase one deal was announced earlier in December as part of a bid to end the months-long tit-for-tat trade war between the world’s two largest economies, which has sent shockwaves through markets and roiled global growth.

The United States is to agree to reduce some tariffs in return for a big increase in purchases by Chinese importers of American farm products, according to the deal that is due to be signed in January.

“We just achieved a breakthrough on the trade deal and we will be signing it very shortly,” Trump said at a Turning Point USA event in Florida on Saturday.

The easing of tensions has improved business confidence and boosted the outlook for economic growth and energy demand.

“Oil prices will continue to benefit from the positive developments in the U.S.-China trade,” said Stephen Innes, chief Asia market strategist at AxiTrader.

“With a more constructive global macro outlook than at any time in the last year, oil is well-supported by both fundamental factors and sentiment now,” he said.

U.S. drillers may be anticipating higher prices as well and last week increased the number of their oil rigs by the most in a week since February 2018.

Drillers added 18 oil rigs in the week to Dec. 20, bringing the total to 685, the most since November, Baker Hughes, an energy services company, said in its weekly report.

U.S. economic growth nudged up in the third quarter, latest data shows, and the economy appears to have maintained the moderate pace of expansion as the year ended, supported by a strong labor market.

Oil prices fall as investors seek clarity on US-China trade deal

CNBC

Reuters
KEY POINTS
  • Brent crude oil futures fell 22 cents, or 0.3% to $65.00 a barrel by 0400 GMT.
  • West Texas Intermediate crude was down 23 cents or 0.4% to $59.84 a barrel.
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Workers extracting oil from oil wells in the Permian Basin in Midland, Texas on May 5, 2018.
Benjamin Lowy | Getty Images News | Getty Images

Oil prices on Monday slid off near three-month highs hit last week as investors searched for clarity beyond the initial impact of a trade deal between the United States and China that’s expected to boost flows between the top two global economies.

Brent crude oil futures fell 22 cents, or 0.3% to $65.00 a barrel by 0400 GMT, while West Texas Intermediate crude was down 23 cents or 0.4% to $59.84 a barrel.

The United States and China cooled long-simmering trade tensions on Friday, announcing a “phase one” agreement that reduces some U.S. tariffs in exchange for what U.S. officials said would be a big jump in Chinese purchases of American farm products and other goods.

“It seems the market has now fully priced (in) the phase 1 trade agreement, so we are going to need further news if we are going to push through the important (technical) resistance that is just ahead,” said Michael McCarthy, chief market strategist at CMC Markets.

The Friday agreement averted additional tariffs on Chinese goods totaling $160 billion that the United States was set to impose over the weekend, but investors remained cautious as they awaited precise details of how the trade deal would work.

U.S. Trade Representative Robert Lighthizer said on Sunday the deal will nearly double U.S. exports to China over the next two years and is “totally done” despite the need for translation and revisions to its text.

China’s State Council’s customs tariff commission said on Sunday that it has suspended additional tariffs on some U.S. goods that were meant to be implemented on Dec. 15.

“What the market needs now, though, is clarity around exactly what the deal entails,” analysts from ING Economics said in a note on Monday.

“The longer we have to wait for this detail, the more likely market participants will start to question how good a deal it actually is.”

Data from China on Monday that showed industrial output and retail sales growth accelerating more than expected in November did offer some support for oil prices.

Still, investors remained cautious as growth in China is expected to slow further next year, with the government likely to set its economic growth target at around 6% in 2020 compared with this year’s 6-6.5%.

Brent has rallied this year, supported by efforts by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia to cut production.

The alliance, known as OPEC+, has agreed to lower supply a further 500,000 barrels per day as of Jan. 1, which could boost oil prices.