Oil Shrugs Off U.S. Tariff Hike to Climb on Tighter Supply

Oil pushed higher even after the U.S. went ahead with a planned tariff increase on Chinese goods, as rising tensions in Iran and elsewhere kept the supply outlook tight.

Futures in New York erased a gain shortly after the increase in levies but then climbed again. China said it would be forced to retaliate after U.S. tariffs on $200 billion of its imports were lifted from 10% to 25%. Iran’s oil shipments have tumbled this month with not a single ship seen leaving the nation’s oil terminals for foreign ports, according to tanker tracking data compiled by Bloomberg. Timespreads on global crude benchmark Brent are soaring, another sign of scarce supply.

Oil has swung between gains and losses this week as investors tried to assess if there was still a chance for a U.S.-China trade deal after the White House said it planned to raise tariffs. Rising tension between Washington and Tehran, Russia’s crude contamination crisis and the likelihood of output from Venezuela continuing to drop are pointing toward tighter supply.

“Prices are finding fundamental support from the tightening supply, as also indicated by the pronounced state of backwardation in the Brent forward curve,” Commerzbank AG analysts including Carsten Fritsch wrote in a report.

West Texas Intermediate crude for June delivery rose 24 cents, or 0.4%, to $61.94 a barrel on the New York Mercantile Exchange at 11:22 a.m. in London after climbing as much as 1.3% earlier.

Brent for July settlement rose 34 cents, or 0.5%, to $70.73 a barrel on the London-based ICE Futures Europe exchange after closing little changed on Thursday. The global benchmark contract was trading an $8.63 premium to WTI.

While trade talks ended without resolution on Thursday, the ball is now in China’s court as negotiations are set to resume in Washington on Friday. The Asian nation hopes it can resolve issues with the U.S. through cooperation and negotiation, the country’s Commerce Ministry said in a statement after the tariff hike. A gauge of Asian stocks and the Bloomberg Commodity Index held onto modest gains.

As well as Iran and Venezuela, there has been unexpected disruption in oil supply in Russia and Nigeria, and it’s still uncertain to what extent Saudi Arabia will increase its production. Tight global supply is being reflected in Brent’s three-month oil timespread, which is at the widest backwardation — where the forward price is lower than the prompt price — in almost five years.

Other oil-market news Occidental Petroleum Corp. will move forward with its $38 billion takeover of Anadarko Petroleum Corp., the oil industry’s biggest deal in at least four years after Chevron Corp. bowed out of the bidding. India stepped up its purchases of U.S. crude amid OPEC cuts and growing pressure to cut back on Venezuelan and Iranian imports. Iraq, OPEC’s second-largest producer, raised the official selling price of its flagship Basrah Light crude for Asian customers to the highest level since 2012, while offering a heavier grade at the smallest discount since its introduction in 2015. Commodities trader  Trafigura estimates there will be about 350,000 b/d of excess high-sulfur fuel oil and a similar shortage of compliant low-sulfur product at the start of next year.