Oil Shrugs Off US Tariff Spike

Oil Shrugs Off US Tariff Spike
Oil pushed higher in early trading despite the U.S. imposition of higher tariffs on Chinese goods.

(Bloomberg) -- Oil pushed higher despite the U.S. imposition of higher tariffs on Chinese goods, as rising tensions in Iran and elsewhere kept the supply outlook tight.

Crude in New York advanced 0.3 percent, while changes in the pricing structure of Brent futures contracts in London gave a strong signal that supply was getting scarce. The trade war escalated as China said it would retaliate after U.S. tariffs on $200 billion of its imports were lifted from 10% to 25%. Yet that threat to oil-demand growth was offset by tanker data showing Iran’s shipments have tumbled this month, with not a single ship seen leaving the nation’s terminals for foreign ports.

Oil has swung between gains and losses this week as investors weighed the impacts of President Donald Trump’s foreign policies. Rising tension between Washington and Tehran, and the likelihood of output from Venezuela continuing to drop are pointing toward tighter markets. Still, the world could need less oil than expected if the U.S. trade standoff with China hurts global economic growth.

For now, the jump in the premium of July Brent crude over the August contract to $1 a barrel on Friday -- a situation known as backwardation -- suggests supply fears are the dominant force.

“Prices are finding fundamental support from the tightening supply, as also indicated by the pronounced state of backwardation in the Brent forward curve,” Commerzbank AG analysts including Carsten Fritsch wrote in a report.

West Texas Intermediate crude for June delivery rose 18 cents to $61.88 a barrel on the New York Mercantile Exchange at 1:19 p.m. in London, after climbing as much as 1.3% earlier.

Brent for July settlement rose 44 cents, or 0.6%, to $70.83 a barrel on the London-based ICE Futures Europe exchange after closing little changed on Thursday. The global benchmark contract was trading an $8.81 premium to WTI.

U.S.-China trade talks ended without resolution on Thursday, and negotiations are set to resume in Washington on Friday. There’s “no need to rush” a deal, Trump said, even though the uncertainty is roiling markets and clouding the global economy. “Tariffs will make our country much stronger, not weaker. Just sit back and watch!” he said on Twitter.

As well as Iran and Venezuela, there has been unexpected disruption in oil supply in Russia and Nigeria, and it’s still uncertain to what extent Saudi Arabia will increase its production. Tight global supply is being reflected in Brent’s three-month oil time-spread, which is at the widest backwardation in almost five years.

Other oil-market news Equinor ASA’s  Oseberg field center in the Norwegian North Sea has been shut down since Wednesday afternoon, a disruption that could add to the strength in physical oil markets in Europe. Occidental Petroleum Corp. will move forward with its $38 billion takeover of Anadarko Petroleum Corp., the oil industry’s biggest deal in at least four years, after Chevron Corp. bowed out of the bidding. India  stepped up its purchases of U.S. crude amid OPEC cuts and growing pressure to cut back on Venezuelan and Iranian imports. Iraq, OPEC’s second-largest producer, raised the official selling price of its flagship Basrah Light crude for Asian customers to the highest level since 2012, while offering a heavier grade at the smallest discount since its introduction in 2015. Commodities trader  Trafigura estimates there will be about 350,000 barrels a day of excess high-sulfur fuel oil and a similar shortage of compliant low-sulfur product at the start of next year.

--With assistance from James Thornhill and Saket Sundria.To contact the reporter on this story: Alex Longley in London at alongley@bloomberg.net To contact the editors responsible for this story: Serene Cheong at scheong20@bloomberg.net James Herron, Amanda Jordan


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