Oil prices dropped early on Friday as fears of the escalating U.S.-Chinese trade war and increased production by Saudi Arabia and Russia outweighed concerns over supply disruptions from Venezuela to Libya to looming sanctions on Iran.
At 08:23 a.m. EDT today, WTI Crude was down 0.78 percent at $72.37, and Brent Crude traded down 1.23 percent at $76.44.
Beginning midnight Washington time on Friday, the U.S. imposed new tariffs on US$34 billion worth of annual imports from China, to which Beijing responded by saying that it was imposing tariffs on U.S. goods. In the trade spat with the United States, China has threatened to slap tariffs on imports of U.S. crude oil and oil products.
Such a move by Beijing—which appears more likely with this latest round of tit-for-tat tariffs—threatens to limit U.S. crude oil exports to China that have been gaining pace in recent months and eating into OPEC’s share in the market—a market that is setting the pace of global oil demand growth.
“The oil market is in the hands of global politics,” Norbert Ruecker, head of macro and commodity research at Julius Baer, told Reuters on Friday.
“China’s reciprocation will in a first tranche include agricultural commodities and in a second tranche most likely oil products and crude oil.”
In another bearish development for oil prices, reports and surveys show that Saudi Arabia had begun to raise its production in June, even if it agreed to start boosting output starting in July. Related: As Diesel Dies, One Commodity Is Crashing
The Saudis have reported to OPEC that they had pumped 10.488 million bpd in June, up by 458,000 bpd from their self-reported figure for May, OPEC sources told Reuters. According to the monthly S&P Global Platts OPEC survey, Saudi Arabia pumped 10.39 million bpd last month, up from 10.01 million bpd in May and well above its 10.06 million bpd quota—the highest Saudi production level since December 2016, just before the production cut deal entered into force.
Still, analysts think that increased production may not be enough, and oil prices will be supported by the continuous plunge of Venezuela’s production and possibly the larger than initially expected Iranian loss of exports, now that the U.S. is eager to take as much Tehran oil out of the market as possible.
By Tsvetana Paraskova for Oilprice.com
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