Oil Drops to 6-Week Low on U.S.-China Trade Fears

05/13/19 03:21 PM EDT

By Dan Molinski

 

--Oil prices fell to a six-week low Monday on worries of a full-blown U.S.-China trade war that could hurt global demand for crude oil.

--West Texas Intermediate futures, the U.S. oil benchmark, ended 1% lower at $61.04 a barrel on the New York Mercantile Exchange, its lowest closing price since March 29. WTI prices have fallen 4.5% this month.

--Brent crude, the global oil gauge, ended down 0.6% at $70.23 a barrel on London's Intercontinental Exchange.

 

HIGHLIGHTS

 

Saudi Tankers: Oil prices had surged early in the session after two Saudi Arabian oil tankers were sabotaged in an attack over the weekend near the Strait of Hormuz amid tensions between Iran and the U.S. and its allies in the region. "Without further evidence or details [regarding the Saudi tankers], and no smoking gun, the narrative has returned to the U.S.-China trade standoff," said Chris Kettenmann, chief energy strategist at Macro Risk Advisors. "Basically, what started as a geopolitical story for oil markets this morning has now caught up with selling across markets." The Dow Jones Industrial Average was recently 621 points lower.

U.S.-China: Beijing said Monday that it would raise tariffs on certain U.S. imports, after President Trump last week accused China of reneging on previously agreed to concessions and raised tariffs on Chinese goods. "With renewed global trade conflict between the U.S. and China, investors will be concerned over the subsequent impact trade conflict could have on the already-slowing global economy," said Mihir Kapadia, chief executive of Sun Global Investments. "Traders will be following developments closely, to see if an escalating trade war would impact prices."

 

INSIGHT

 

Monthly Reports: While the U.S.-China trade talks could be the key broader-market issue this week, analysts at Simmons Energy said monthly reports this week from the Organization of the Petroleum Exporting Countries and the International Energy Agency will be closely watched by the oil market. "It will be interesting to see if the IEA reduces their oil demand forecast to move in line with the IMF's view of slower global economic growth," the Simmons analysts said.

$60 Oil: Higher efficiency levels have lowered the break-even level for oil exploration and is fueling a revival in investment interest, according to a Wood Mackenzie survey of 258 senior energy executives. Some 22% of respondents said exploration can break even with Brent at $55-$60 a barrel while 18% are comfortable at $45-$50. That compares with $80 four years ago, prior to the market's price plunge.

Don't Forget Russia: Oil investors are paying too much attention to U.S.-China trade tensions and too little to how the decrease in Russian crude cargoes due to contamination would add to lower supplies from Iran, Energy Aspects said. "We are expecting demand to outstrip supply by nearly 1 million barrels/day" this quarter. In April, high levels of organochloride were found in crude transported through the Druzhba pipeline and shipments were suspended.

 

AHEAD

 

--OPEC's monthly oil market report is due Tuesday, followed by IEA's report

Wednesday.

 

--Michael Amon and Biman Mukherji contributed to this article.

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

(END) Dow Jones Newswires

May 13, 2019 15:21 ET (19:21 GMT)

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