Oil rises toward $69, but set for 2019's biggest weekly loss

Saturday, 25 May, 2019

"It seems like we're going to be entrenched in a trade war, which is really going to hurt demand for crude oil", said Tariq Zahir, a commodity fund manager at New York-based Tyche Capital Advisors LLC.

Oil prices plunged on Thursday, losing about 5 per cent as trade tensions dampened the demand outlook, putting the crude benchmarks on course for their biggest daily and weekly falls in six months.

Brent crude futures were at $68.65 per barrel at 0534 GMT, up 89 cents, or 1.3%, from their last close, with prices underpinned by OPEC supply cuts and Middle East tensions.

U.S. crude inventories swelled by 4.7 million barrels in the latest week to their highest since July 2017 at 476.8 million barrels, the U.S. Energy Information Administration reported.

News on Thursday that companies were suspending business with Chinese telecom giant Huawei after it had been blacklisted by Washington caused West Texas Intermediate to settle $3.51 lower at $57.91 per barrel, tumbling 5.7 percent; WTI is on track to end the week 7.7 percent lower and post the worst weekly performance in five months.

There is now evidence that the impact of the U.S. Asian stocks tracked USA equities lower after the White House was said to be considering cutting off the flow of vital U.S. technology to five Chinese surveillance companies.

"China's decision to date to not impose tariffs on USA crude oil" in part reflects "the importance of US supply to help China meet its crude oil demand", says Jane Nakano, senior fellow in the energy and national security program at the Center for worldwide and Strategic Studies, a D.C. -based think tank.

"The prevalent optimism for a tighter global market and higher oil prices will now only be vindicated when US oil inventories start drawing". -China trade dispute is affecting the USA economy.

China in 2018 surpassed the U.S.as the world's largest importer of crude, boosting its supplies as domestic production declined.

Brent's price structure remains in backwardation, with prices for prompt delivery higher than those for later dispatch, suggesting a tight balance between supply and demand. The rise might be behind the divergence between oil and the broader market.

A shipment of crude oil, by contrast, can often change hands multiple times between when it leaves port and arrives at its destination.

OPEC heavyweight Saudi Arabia signaled that it could extend the supply cut agreement into the second half of this year to support oil prices.

Global geopolitical risk was still sufficient to provide a floor for oil prices, said Again's Kilduff.

The Organization of the Petroleum Exporting Countries and allies including Russian Federation, an alliance known as OPEC+, have been cutting supply since January to tighten the market and prop up prices.