Oil headed for a weekly loss as escalating trade tensions between the U.S. and China rattled investors, while Libya’s plans to restore output allayed fears of a supply crunch.
As World Oil writes in the article Oil set for weekly loss on trade war fears, Libya supply return, futures in New York plunged about 4.4% this week as U.S. President Donald Trump doubled down on a trade war with China by threatening tariffs on nearly half of all American imports from the Asian nation. Libya restarted a key field that had been shut since February after regaining control of ports from a political faction. OPEC and its allies could boost oil production by more than the 1 MMbpd agreed last month if needed, Russia’s Energy Minister said Friday.
Oil has retreated since hitting a three-year high in New York at the start of the month, as the trade clash between the U.S. and China threatened economic growth. Supply fears abated too, as Libya set about restoring exports and the U.S. signaled it might show some flexibility in re-imposing sanctions on buying Iranian crude. The structure of Brent contracts even signaled a slight surplus. Nonetheless, the International Energy Agency warned on Thursday that imminent losses in Iran and elsewhere may force Saudi Arabia and OPEC’s other Gulf members to pump near the limits of their capacity. “Even though the outlook is quite bullish when looking ahead, people are worried that it’s not right now,” Richard Mallinson, an analyst at consultants Energy Aspects Ltd. in London, said in a Bloomberg Television interview. “We’ve had a big announcement of a recovery in Libyan production and that’s just sent some nervous shudders through the market.”
WTI crude for August delivery traded at $70.63/bbl on the New York Mercantile Exchange, $0.30 higher, in London. Total volume traded was about 15% below the 100-day average. Brent for September settlement added $0.13 to $74.58 on the London-based ICE Futures Europe exchange. The global benchmark traded at a $5.06 premium to WTI for the same month. Front-month Brent flipped to a discount to October futures this week, a structure known as contango. The pattern normally suggests that immediate supplies are excessive. The two contracts nearest to expiry were near parity on Friday.
Brent posted its biggest one-day drop in more than two years on Wednesday, after Trump released a list of $200 billion worth of Chinese products that could face additional tariffs. Global risk assets sold off as China vowed to retaliate. Meanwhile, there are signs supply disruptions that helped oil’s rally earlier this month are easing in some places. OPEC member Libya is set to restart production at El-Feel. The country’s National Oil Corp. lifted force majeure at the field, which will boost output to 50,000 bpd within two days and to 72,000 bbl three days later, the company said in a statement on Thursday. Also, Syncrude Canada Ltd. has increased its July production forecast at its oil-sands upgrader in Fort McMurray, Alberta, according to a person familiar with the matter, following a shutdown in June. That comes after various disruptions from longer-than-anticipated maintenance to power outages due to a blast roiled operations at Canada’s second-oldest oil sands mine.
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China’s crude imports fell in June to the lowest since December, customs data show. Loadings of Caspian CPC are scheduled to fall to lowest in a year in August, according to a preliminary loading program. OPEC exports may have returned to pre-cut levels of 2016, and any further output increase would push spare capacity to “dangerously low levels,” Sanford C. Bernstein & Co. said in a note.