Oil falls on trade fears after Trump's tariff threat

Daniel Fowler
July 14, 2018

Oil prices rebounded Thursday as investors reevaluated news that had sent Brent to its biggest decline in nearly two-and-a-half years on Wednesday.

The price for Brent crude oil, the global benchmark for the price of oil, was down 2.1 percent as of 9:18 a.m. EDT to $77.19 per barrel. Total volume traded was about 33 percent above the 100-day average. U.S. West Texas Intermediate (WTI) crude futures for August delivery rose 71 cents to $71.04 a barrel, but was on course for a weekly decline of about 3.7 percent.

"The headline on Libya was merely the trigger", said John Saucer, a vice president at advisory firm Mobius Risk Group.

US oil prices jumped on the news, but later retreated, though were still above the day's lows.

"The scope of today's sell-off is unequivocally a speculative washout", said Saucer.

The decline in stockpiles was the most in almost two years, leaving inventories at their lowest since February 2015, and the consequent price rally suggests that Wednesday's decline was overdone.

Oil prices dived late last night amid brewing trade war tensions and a move by Libya to ramp up its oil production.

"Escalating trade tensions between the US and China has prompted risk aversion in today's trading session, which is evident in oil prices", said Abhishek Kumar, senior energy analyst at Interfax Energy.

The falls came despite a USA government report that American crude oil stockpiles fell by more than 12 million barrels last week and are about 4% lower than average for this time of year.

"Shale crude is not an alternative to Iranian crude", Sandy Fielden, director of research for commodities and energy at Morningstar, told Bloomberg.

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China was the world's biggest oil importer previous year, followed by the US.

That suggests Wednesday's tumble on news that Libya is reopening four oil export terminals was overdone.

Libyan Crude Oil production fell to 527,000 BPD from a high of 1.28-M BPD in February following the port closures, the NOC said earlier.

"Breaking $72 on the chart is big", said John Kilduff, founding partner at energy hedge fund Again Capital, CNBC reported. Concerns about a lack of spare capacity had led crude to rally.

Still, there are already signs the threat of the renewed U.S. sanctions are discouraging some Asian countries from buying Iranian crude.

The bearish mood was also fueled by news the United States would consider requests for waivers from sanctions due to snap back into place on Iranian crude exports.

Washington had previously said countries must halt all imports of Iranian oil from November 4 or face US financial restrictions, with no exemptions.

Crude inventories fell by 12.6 million barrels in the week to July 6, compared with analysts' expectations for a decrease of 4.5 million barrels.

"If the world economy performs better than expected, leading to higher growth in crude oil demand, OPEC will continue to have sufficient supply to support oil market stability", it said. This will bring additional crude to the market. "Our markets remain open while we work directly with customers to resolve the issue", a CME spokesman said in an emailed statement.

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