Oil Drops on Trade Gloom
(Bloomberg) -- Oil snapped a two-day gain as investors weighed a sizable drop in U.S. inventories against a trade war that shows few signs it will be resolved.
Futures in New York dropped as much as 0.6% after rallying 4% over the previous two sessions. U.S. stockpiles fell by 10 million barrels last week to the lowest since October 2018, the Energy Information Administration reported. Treasury Secretary Steven Mnuchin said Wednesday that U.S. trade officials expect Chinese negotiators to visit Washington, but he wouldn’t say whether a previously planned September meeting would take place.
The drop in American inventories is evidence that aggressive output cuts by the Organization of Petroleum Exporting Countries and its allies are having an impact on the market. However, an increase in American oil production to a record tempered the price optimism. Crude still is heading for a monthly loss as investors see little chance of a quick fix to the U.S.-China trade conflict, while the growing likelihood of a no-deal Brexit is also stoking demand angst.
“Global trade spats will keep downward pressure on oil, limiting prices from rising higher,” said Kim Kwangrae, a commodities analyst at Samsung Futures Inc. in Seoul. The market seems concerned about rising American production and wasn’t as responsive as it might have been to the big drop in inventories, he said.
West Texas Intermediate crude for October delivery lost 20 cents, or 0.4%, to $55.58 a barrel on the New York Mercantile Exchange as of 7:35 a.m. in London after falling as much as 35 cents earlier. The contract settled 1.6% higher on Wednesday.
Brent for October fell 31 cents, or 0.5%, to $60.18 a barrel on the ICE Futures Europe Exchange after closing 1.7% higher on Wednesday. The global benchmark crude traded at a $4.60 premium to WTI.
American crude stockpiles fell by 2.3%, the most since mid-July, to 427.8 million barrels last week, the EIA data showed. That was in line with an earlier estimate by the industry-funded American Petroleum Institute. Meanwhile, the nation’s oil output rose by 1.6% to 12.5 million barrels a day, the highest in EIA figures going back to 1983.
Trade tensions between Washington and Beijing reached new heights last Friday when China announced retaliatory tariffs against the U.S. and President Donald Trump responded by ratcheting up duties on Chinese products.
--With assistance from James Thornhill.
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