Oil Prices Mixed on U.S.-China Trade Tensions

05/09/19 03:53 PM EDT
By Dan Molinski 

-- Oil prices ended mixed Thursday as the U.S. and China resumed high-level trade negotiations, while the Trump administration also prepared new tariffs on Chinese goods set to kick in Friday.

-- West Texas Intermediate futures, the U.S. oil benchmark, ended 0.7% lower at $61.70 a barrel on the New York Mercantile Exchange.

-- Brent crude, the global oil benchmark, rose a marginal 0.03% to $70.39 a barrel on London's Intercontinental Exchange.


U.S.-China Trade: U.S. oil declined moderately Thursday, one day after notching its biggest one-day gain in two weeks. Prices rose Wednesday following the release of an Energy Information Administration report that showed a bullish, 4 million-barrel decline in U.S. crude-oil inventories. The sizable drawdown followed increases totaling 31 million barrels over the previous six weeks, which had left stockpiles at a 19-month high.

Thursday's focus in the oil market was on trade talks between the U.S. and China that resumed in Washington. Tensions are high after President Trump said China reneged on already agreed upon concessions, saying the U.S. would therefore have to raise tariffs again on Chinese imports starting Friday. Mr. Trump told reporters at the White House on Thursday the U.S. was "starting the paperwork" to expand tariffs on $325 billion in Chinese goods that aren't currently subject to levies.

"The ongoing back-and-forth on U.S.-China trade and whether a deal will be reached or if a tariff increase is issued has softened risk appetite, " said Helima Croft, head of commodity strategy at RBC Capital Markets.

While the hope among bullish analysts is that the U.S. and China will eventually agree to a far-reaching trade deal that could keep global oil demand strong, some analysts warn the continuing lack of any final deal may start to hurt oil consumption in both countries.

"The concern is that a new round of punitive tariffs could slow oil demand in the two largest oil-consumer countries," said analysts at Commerzbank in a note. "This has not so far been the case with the existing punitive tariffs, however, as yesterday's import data from China and U.S. inventory data reveal."

Russia Pipeline: Investors were also watching developments following the contamination of one of the world's largest crude pipelines systems, connecting Russian oil to Europe.

"Ten European refiners halted imports after refinery eroding chlorides were found on the Druzhba pipe," said Ms. Croft. "The longer Druzhba is offline, the tighter the market." She said the bull case would be a protracted cleanup, disrupting Russian exports and triggering a scramble for barrels. A bear case, she said, could mean refineries cut runs, easing regional tightness, but spiking refined product prices and "triggering a call on U.S. product exports."


OPEC: Even as U.S.-China trade is front and center, oil investors are also grappling with the implications of Washington's new, tougher oil sanctions against Iran and how this may affect the pecking order among the world's largest oil-producing nations. The U.S. is trying to eliminate Iran's oil exports altogether by declaring that as of May 2 no countries are allowed to import Iranian crude without facing financial penalties or other punishment.

"The U.S. is currently the largest U.S. crude-oil producer, and with Saudi Arabia and Russia continuing to restrain production to support prices, the U.S. is clearly in the production driver's seat," said Dominick Chirichella, director of market insights at DTN. "Whether OPEC and its partners will continue to restrain production and hand the U.S. producers additional global market share is a major question and one that will be discussed robustly at the upcoming OPEC meeting in late June."


-- Baker Hughes releases its rig-count report on Friday at 1 p.m. ET.

-- OPEC's monthly oil market report is due Tuesday.

--Sarah McFarlane contributed to this article.

Write to Dan Molinski at Dan.Molinski@wsj.com


(END) Dow Jones Newswires

May 09, 2019 15:53 ET (19:53 GMT)

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