Oil Buoyed by Tightening Global Supplies

05/10/19 09:47 AM EDT
By Dan Molinski 

--Oil prices edged higher Friday as investors shrugged off a Trump administration decision to impose higher tariffs on Chinese imports, and instead focused on continuing supply concerns in Venezuela, Iran and Libya.

--West Texas Intermediate futures, the U.S. oil benchmark, recently rose 0.2% to $61.81 a barrel on the New York Mercantile Exchange.

--Brent crude, the global oil benchmark, was up 0.5% at $70.74 a barrel on London's Intercontinental Exchange.

HIGHLIGHTS

U.S.-China Trade: Oil prices have been on a bumpy road this week amid shifts in sentiment over trade negotiations between the U.S. and China, the world's two largest economies. On Friday morning, President Trump made good on a threat to raise tariffs on Chinese goods, but investors were nonetheless encouraged that he didn't signal any derailment to the overall trade talks.

"Talks with China continue in a very congenial manner -- there is absolutely no need to rush -- as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S.," Mr. Trump said in a Twitter post.

Analysts said oil investors also aren't overlooking the price-supportive, ongoing risks to global crude supplies. Tough U.S. sanctions against Venezuela and Iran have significantly curbed oil exports from those two countries -- both members of the Organization of the Petroleum Exporting Countries -- while crisis-torn Libya, also an OPEC member, is on investors' radar.

"With U.S.-China trade deal hopes revived, we could be on the verge of another oil rally," Phil Flynn, senior market analyst at Price Futures in Chicago, said in a note to clients Friday. "On top of that we still have supply risks and threats. Can't forget Venezuela, Iran, and Libya."

Iran, Venezuela: Sanctions on Iran that began last year have already pushed Iranian exports to below 1 million barrels a day from 2.5 million previously, while Venezuelan exports are slowing to a trickle as Washington tries to force embattled President Nicolas Maduro from power.

"Venezuelan exports may also fall further too, as the U.S. is likely to squeeze the country economically, implying further sanctions, following the failed uprising against the Maduro regime last week," said analysts at Energy Aspects in a note.

INSIGHT

Chevron Exits: Oil markets were also focused this week on a potential bidding war between Chevron Corp. and Occidental Petroleum, both of which wanted to buy shale-rich Anadarko Petroleum. But after Occidental made an offer higher than Chevron's initially accepted offer of $33 billion, Chevron decided to make no counteroffers, and instead will walk away with a $1 billion breakup fee.

"Chevron wields an enviable growth profile among the Majors. It is already a leader in U.S. tight oil, underpinned by its low-royalty, contiguous acreage position throughout the Permian," said Greig Aitken, director of M&A Research at Wood Mackenzie. "We thought Chevron had room to up its offer without destroying value -- and in oil and gas M&A, that's generally an achievement for any buyer. But it looks like Chevron wasn't content with just breaking even."

AHEAD

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

--The EIA's monthly Drilling Productivity Report, which details oil production from the U.S.'s main shale regions, is due for release Monday.

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

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

 

(END) Dow Jones Newswires

May 10, 2019 09:47 ET (13:47 GMT)

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