Oil Prices Recover amid Intensifying US-China Trade Dispute
Oil prices recovered on Monday in Asia after a drop last Friday, amid fueling fears of an intensifying trade dispute between the world’s two largest economies.
US West Texas Intermediate crude futures increased 67 cents, or 1.08%, to $62.73 a barrel. The US benchmark declined about 4.4% last week, its biggest such loss since the week ended February 9.
Meanwhile, Brent crude futures, the benchmark for oil prices outside the US, gained 95 cents, or 1.42%, to $68.06 a barrel. Brent saw a weekly drop of 4.5%, its biggest since the week ended March 2.
Chinese markets were closed last Thursday and Friday due to holidays. Shanghai Crude oil WTI Futures fell 0.05% to 402.30 yuan per barrel for September delivery.
“While it’s possible an escalating trade war could dent global growth sentiment, the real fear is that China, if pushed hard enough, could slap a tax on US oil imported into China,” said Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA in Singapore.
Oil prices dropped about 2% on Friday after US president Donald Trump threatened new tariffs on China. It reignited fears of a trade war between the 2 countries.
“The market is currently concerned for the escalating China-US trade war tensions,” said Bjarne Schieldrop, SEB head of commodity strategy. “And with good reason since this will be bad for global growth and oil demand growth further down the road.”
“However, oil market fundamentals are tightening and oil prices look set to be squeezed higher as long as OPEC sticks to its cuts.”
Opec and other producers, including Russia, agreed to cut output by 1.8 million barrels per day in November last year. This will cut global inventories to the 5 year-average. The arrangement is set to expire at the end of 2018.
Additionally, Opec’s number 2 producer Iraq said on Monday it was keeping prices for its crude supplies in May steady.
US Adds More Rigs Last Week
General Electric’s Baker Hughes energy services firm said in its closely followed report on Friday that the number of oil drilling rigs rose by 10 to 808 last week.
That was the highest number since March 2015, underscoring worries about rising US output.
Domestic oil production, buoyed by shale extraction, increased to an all-time high of 10.46 million bpd last week, the Energy Information Administration (EIA) said. It stayed above Saudi Arabia’s output levels and within reach of Russia.
Analysts have recently warned that booming US shale oil production could potentially derail Opec’s effort to end a supply glut.