Oil dips as trade disputes threaten growth, but crude market remains tight
Oil prices dipped on Friday amid escalating trade friction between the United States and other major economies, although crude markets remain tight due to supply disruptions and generally high demand.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $73.19 a barrel at 0421 GMT, down 26 cents, or 0.4 percent, from their last settlement. WTI on Thursday hit its highest since November 2014 at $74.03 per barrel.
Brent crude futures LCOc1 were at $77.74 per barrel, down 11 cents, or 0.1 percent.
Friday’s falls came as Asian stock markets were near nine-month lows, despite a small rebound .MIAPJ0000PUS, amid an escalation of trade disputes between the United States on one side and economies including China, India and the European Union on the other.
China’s yuan slipped to a new low against the U.S.-dollar on Friday CNHUSD=R and despite a slight recovery was on course for its worst month on record, as the increasingly bitter trade row with the United States threatened to rattle the world’s second-biggest economy.
Traders worry that escalating tariffs on export goods, including U.S. crude oil, will stall trading and eventually choke world economic growth.
Commodities brokerage Marex Spectron said this week that the macroeconomic outlook was “overwhelmingly bearish.”
Despite the gloomy outlook for global trade, oil markets remain tight.
North America’s oil markets have tightened as an outage of Canada’s Syncrude has locked in over 300,000 barrels per day (bpd) of production. The outage is expected to last at least through July, according to operator Suncot (SU.TO).
Outside North America, oil prices have been rallying for most of 2018 due to record demand and voluntary supply cuts led by the Middle East dominated producer cartel of the Organization of the Petroleum Exporting Countries (OPEC).
Unplanned supply disruptions from Libya to Venezuela further tightened the market.
OPEC and Russia have said they will raise output to meet demand and replace crude from unplanned disruptions.
“The clear message from the OPEC+ meetings was that those countries with spare capacity would increase production to keep the market well-supplied,” U.S. Jefferies bank said on Friday.
It added that “an incremental 1 million bpd from this group is feasible in July” and that this would offset the expected drop in Iranian exports and other declines elsewhere during the second-half of the year.
The U.S. government is trying to shut Iran out of oil markets when it fully implements its sanctions in November.
Many major buyers of Iranian oil, including Japan, India and South Korea, have already indicated that they would stop importing Iranian crude unless they get an exemption on the sanctions by Washington.