Oil Set for Weekly Drop Despite Tanker Attacks

(Bloomberg) -- Oil headed for a weekly decline as the tanker attacks in the Middle East provided only a relatively small boost to prices that have been hammered by a deepening trade war and swelling U.S. stockpiles.

Futures in New York were steady after rising 2.2% Thursday. The White House blamed Iran for the attacks near the Strait of Hormuz, the biggest global choke-point for oil flows, while Tehran rejected the allegations. Meanwhile, the U.S. and China remained deadlocked on trade, with economic adviser Larry Kudlow warning Beijing may face consequences if President Xi Jinping declines an invitation to meet with President Donald Trump in Japan this month.

While a war in the Middle East would be very disruptive for energy flows, the region is less important for global crude markets than it was a couple of decades ago due to the rise of U.S. shale production. Unless the situation escalates dramatically, the prospect of a prolonged trade war between the world’s two biggest economies looks likely to remain the major price driver.

“Growth concerns spurred by U.S.-China trade spat as well as rising American crude inventories are hindering oil’s attempt to recover,” said Kim Kwangrae, a commodities analyst at Samsung Futures Inc., said by phone. “Still, we may not see a further plunge in prices as escalating geopolitical conflicts in the Middle East should at least keep crude buoyed.”

West Texas Intermediate futures for July delivery fell 6 cents to $52.22 a barrel on the New York Mercantile Exchange at 7:55 a.m. in London after swinging between gains and losses earlier. The contract advanced $1.14 on Thursday and is down 3.3% for the week.

Brent for August settlement rose 15 cents, or 0.2%, to $61.46 a barrel on London’s ICE Futures Europe Exchange after closing up 2.2% Thursday. It’s down 2.9% so far this week, heading for a fourth weekly decline. The global benchmark crude traded at a $9.02 premium to WTI for the same month.

U.S. officials released images they said show that Iran was involved in Thursday’ attacks. An Islamic Revolutionary Guard Corps patrol boat “was observed and recorded removing the unexploded limpet mine from the Kokuka Courageous,” one of two tankers attacked, said Navy Captain Bill Urban of the U.S. Central Command. However, Centcom said in a statement that it had no interest in engaging in a new conflict in the Middle East.

President Trump has repeatedly threatened to raise tariffs if his Chinese counterpart doesn’t meet him at the Group of 20 summit. There’s no deadline for Beijing to return to trade talks that broke off last month after Washington accused China of reneging on provisions of a tentative trade deal, he said Wednesday.

--With assistance from James Thornhill.

To contact the reporter on this story:
Heesu Lee in Seoul at hlee425@bloomberg.net

To contact the editors responsible for this story:
Serene Cheong at scheong20@bloomberg.net
Andrew Janes, Ben Sharples