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Oil Stabilizes After Rapid Slump Amid Fears of Global Trade War


Jun 3, 2019 by Tsuyoshi Inajima

(Bloomberg)

Oil stabilized on Monday, giving traders a brief respite from the rapid slump driven by fears that increasingly aggressive U.S. trade policy could trigger an economic slowdown.

Futures in New York rose 0.7%. While there was no repeat of the 5.5% slump seen on Friday, the trade war still loomed over markets as China blamed the U.S. for the collapse in trade talks and said it won’t be pressured into concessions. Saudi Energy Minister Khalid Al-Falih called recent volatility “ unwarranted” and reiterated his confidence that OPEC+ will keep taking action to stabilize the market beyond June.

The trade tensions mean oil has moved close to the edge of a bear market, having fallen almost 20% from a high in late April. A tense situation in the Middle East hasn’t been enough to support prices. Meanwhile, there could be greater clarity this week on whether Russia will keep cooperating with Saudi Arabia on production cuts as ministers from the countries meet in St Petersburg.

“The oil market continues to trade with extremely high beta to risk as concerns over a global slowdown escalate,” said Stephen Innes, managing partner at SPI Asset Management. “The latest sell-off should be a stark reminder of just how fragile the oil market’s balancing act is, and should be enough to bring Russia back into the supply agreement fold.”
 

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West Texas Intermediate crude for July rose 39 cents to $53.89 a barrel on the New York Mercantile Exchange at 10:56 a.m. in London, after falling as much as $1.39 earlier. The contract is now down more than 18% from its closing high on April 23.

Brent for August settlement advanced 25 cents to $62.24 a barrel on London’s ICE Futures Europe exchange. The July contract closed 3.6% lower at $64.49 before expiring on Friday. The global benchmark crude was trading at a premium of $8.19 to WTI.

There could be a recession in nine months if the U.S. imposes 25% tariffs on an additional $300 billion of Chinese exports and Beijing retaliates, according to Morgan Stanley. Investors may still be underestimating the risks to the global economy from the trade war, Chetan Ahya, chief economist, wrote in a note released Sunday.

“I would like to reiterate my confidence, based on my discussions with several key producers, and on our track record, that we will do what is needed to sustain market stability beyond June” Al-Falih said in an interview with state-run Saudi Press Agency. “We have previously stated our commitment to do whatever it takes to stabilize markets and we have delivered on those promises. And I am making that commitment again”

Other oil-market news:Russia’s average daily oil output fell below its OPEC+ target in May for the first time this year after buyers refused to take exports via Druzhba, the nation’s key pipeline to Europe, because of contamination. The country produced about 11.11 million barrels a day of oil last month, the lowest since June 2018.

Saudi Arabia raised July pricing for all crude oil grades to Asia and cut pricing for most grades to the U.S. and Europe.

Working oil rigs in the U.S. rose for the first time in four weeks, according to data released Friday by oilfield services provider Baker Hughes.

Crude futures for July delivery fell 4% to 429.6 yuan a barrel on the Shanghai International Energy Exchange.



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