Oil prices fell slightly on Thursday as an escalating trade dispute involving China and the US concerned investors and prompted selloffs in a number of global markets.  Repsol photo.  

Oil prices fall on possible OPEC supply increases, US/China trade dispute

Oil prices fell on Tuesday as OPEC and Russia mulled increasing their crude outputs and on rising concerns over an escalating trade dispute between the United States and China that has spurred selloffs in many global markets.

By 2:10 p.m., EDT, benchmark Brent crude had fallen 22 cents to $75.12 and US West Texas Intermediate had dropped $1.01 to $64.68/barrel.  The Canadian Crude Index was down $1.79 to $38.89.

Reuters reports Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, said in a note”WTI is more vulnerable to spillover from today’s hard selloff in global equities than is Brent as the differential between the two benchmarks has stretched back to above $10 per barrel”.

“Brent is being relatively supported this week by increasing concerns over lost Libyan supply in which as much as 400,000 barrels per day of output has been impacted by an attack on two key terminals,” he wrote.

Both Brent and WTI are impacted by the intensifying trade dispute involving China and the United States.

On Tuesday, President Trump threatened to impose a 10 per cent tariff on $200 billion in Chinese goods.  China recently raised import duties on a $34-billion list of goods from the US, including soybeans, electric cars and whisky in retaliation for the Trump administration’s initial tariffs on $50 billion in Chinese exports to the US which will kick in on July 6.

Since 2017, China has imported about $1 billion in oil from the United States.

As a result of the tensions, Chinese stocks fell to their lowest in almost a year and in the US, all three major stock indexes dropped.  The Dow Jones Industrial Average erased its gains for the year.

Analysts remain concerned that a drop in global crude demand could be the result of the strained trading relationship between the US and China.

Later in the week, OPEC along with the supply cut agreement participants will meet in Vienna to discuss the pact.  Many expect that OPEC and Russia will agree to increase their production to compensate for flagging Venezuelan production and an expected drop in Iran’s exports following renewed US sanctions.

Ahead of the meeting, Russia and Saudi Arabia are both advocating for a steep increase in output.  According to Reuters, Russia’s Energy Minister Alexander Novak says he would like to boost participants’ total output by 1.5 million barrels per day (b/d).

Novak told reporters “Oil demand usually grows at the steepest pace in the third quarter…We could face a deficit if we don’t take measures”.  He added “In our view, this could lead to market overheating.”

“We share the general expectation that supply quotas will be increased, but probably more in line with the smaller range being quoted (300,000-600,000 b/d) given the lack of consensus amongst OPEC members,” Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald Europe told Reuters.

Meanwhile, Reuters reports that on Tuesday, Iran’s oil minister said US President Donald Trump supports rising oil prices which support US shale production, despite his tweets concerning OPEC and the high price of oil.

“We believe Mr. Trump prefers high oil prices to support shale production in America, but he attacks OPEC, especially after U.S. withdrawal from the JCPOA (Iran’s nuclear deal), to avoid public pressures for increasing the prices of oil,” Bijan Zanganeh was quoted by SHANA before leaving for the OPEC summit.