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Oil Pares Biggest Weekly Loss of 2019 as Supply, Trade Fears Mix


May 24, 2019 by Grant Smith and Tsuyoshi Inajima

(Bloomberg)

Oil rose, paring its biggest weekly loss of the year, as signs that global crude markets are tightening jostled with fears that the U.S.-China trade feud will hurt fuel demand.

Futures plunged 5.7% in New York on Thursday as investors fled riskier assets following the White House’s blacklisting of Huawei Technologies Co. and several Chinese surveillance companies, moves that have been met with defiance by Beijing. But on Friday, prices in London increased by 1.2% as tightening spreads between monthly crude contracts reinforced expectations that U.S. sanctions on Iran, and a range of crises from Venezuela to Libya, will strain global supplies.

West Texas Intermediate crude for July delivery rose 68 cents, or 1.2%, to $58.59 a barrel on the New York Mercantile Exchange at 8:35 a.m. local time, after climbing as much as 83 cents earlier. WTI is down 6.6% this week, heading for the biggest weekly loss since Dec. 21.

Brent for July settlement advanced 80 cents, or 1.2%, to $68.56 a barrel on the London-based ICE Futures Europe exchange after tumbling 4.6% Thursday. The global oil benchmark was at a $9.93 premium to WTI.

Brent has fallen 5.1% this week. Nevertheless, the premium for July versus contracts two months hence jumped on Thursday — by 18% to $2.20 a barrel — suggesting traders remain nervous about scarcity of supply in the short term.

“Yesterday’s price slide had nothing to do with oil market-specific factors,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “Despite the significant fall in the front-month forward contract, the price differential to the following forward contract has actually widened” and “this points to continuing tightness of supply.”

OPEC Cuts

Anxiety over the trade war is taking precedence over a supply backdrop riddled with risks including a tense Middle East, a steadily deteriorating situation in Venezuela and production disruptions from Russia to Nigeria. The drop in oil prices may give the Organization of Petroleum Exporting Countries and its allies more incentive to extend their production cuts beyond June.

U.S. President Donald Trump described Huawei as “very dangerous” on Thursday even as he suggested the Chinese technology giant could be included in some kind of trade deal. The White House also proposed tariffs on goods from countries that it deems are engaging in competitive devaluation of their currencies, a move that would further escalate its assault on global trading rules. China blamed Washington for wrecking trade talks and insisted the U.S. must alter its “wrong practices” before negotiations can resume.

American crude stockpiles rose by 4.7 million barrels to the highest level since mid-2017 last week, according to Energy Information Administration data. Gasoline and distillate inventories also increased.

Other oil-market news: Oil tanks along China’s eastern seaboard are  filling up as the effects of the trade war trickle down into the real economy and sap demand for fuels, making life tough for the country’s independent refiners. The global push for  cleaner-burning ship fuel is threatening to drive the value of Middle East crude to a record low even as supplies are squeezed. Russia and Poland said flows of clean oil through the giant Druzhba pipeline into Europe could  resume within 2 1/2 weeks.



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