Oil Set for Best Month Since January
(Bloomberg) -- The U.S.-Iran standoff and falling American stockpiles have propelled oil toward its biggest monthly gain since January but two crucial meetings in the next few days will determine whether the rally continues.
Futures in New York declined Friday, paring their advance in June to around 11%. Investors are focused on the meeting Saturday in Osaka between the U.S. and Chinese leaders for any progress on defusing the trade war. OPEC and its allies will then gather in Vienna on Monday and Tuesday to decide on the group’s production levels.
Growing gloom over the global economic outlook spurred by the trade war snubbed out oil’s rally in late April, and pushed it down more than 20% before attacks on tankers in the Middle East gave prices a lift. While President Donald Trump has threatened this week to impose more tariffs on Chinese goods, there is some hope he may agree to another truce while negotiations resume. Meanwhile, most analysts expect the Organization of Petroleum Exporting Countries to roll over their output cuts for the rest of the year.
“The market is just being very cautious right now because of the two very big events coming up back to back,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. Crude may rally further if there’s at least a pause in the trade war and if OPEC+ extend their output cuts, he said.
West Texas Intermediate for August delivery fell 23 cents, or 0.4%, to $59.20 a barrel on the New York Mercantile Exchange at 7:35 a.m London. The contract has risen 3.1% so far this week and 10.7% in June.
Brent for August settlement declined 28 cents, or 0.4%, to $66.27 on London’s ICE Futures Europe Exchange and is up 2.8% this month. The August contract expires Friday. The global benchmark crude is trading at a premium of $7.09 to WTI.
After initially indicating the U.S. may delay further tariffs on Chinese goods, Trump appeared confrontational when he warned of more tariffs in an interview with Fox Business Network earlier this week. Chinese President Xi Jinping condemned protectionism and “bullying practices” in a meeting with African leaders on Friday.
OPEC members, including Iraq, have voiced support for Saudi Arabia’s push for extending production cuts, with even Russian President Vladimir Putin saying the agreement had a positive effect on the market. Russian Energy Minister Alexander Novak said Friday that the country is still in talks on the OPEC+ deal.
The output reductions are likely to be rolled over but not deepened, Goldman Sachs Group Inc. said in a note Thursday. The Saudis will probably push for more extensive cuts, according to a note from JPMorgan Chase & Co.
The Xi-Trump meeting was likely to be more important for oil than the OPEC+ gathering and if either leader walks out it would be a “very pessimistic sign,” OCBC’s Lee said.
--With assistance from James Thornhill.
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