Oil edges lower, but hopes on easing trade tensions cap losses

Parvez Jabri August 20, 2019

LONDON: Oil prices edged lower on Tuesday on persisting concerns over demand, but optimism US-China trade tensions will ease and hopes major economies will take stimulus measures to ward off a potential economic slowdown capped losses.

Brent crude was down 19 cents to $59.55 a barrel by 1134 GMT while US crude was down 27 cents at $55.94 a barrel. Both contracts traded in positive territory earlier in the session.

The United States said it would extend a reprieve that permits China’s Huawei Technologies to buy components from US companies, signalling a slight softening of the trade conflict between the world’s two largest economies.

The extension brought “relief to investors”, Tamas Varga from oil brokerage PVM said.

“The US-China trade spat has been at the centre of the oil market demise, which has sent the global economy to the brink of recession and negatively impacted oil demand forecasts,” Stephen Innes, managing partner of VM Markets, said in a note.

Overall oil demand concerns continue to weigh on oil. The Organization of the Petroleum Exporting Countries cut its forecast for global oil demand growth in 2019 by 40,000 barrels per day (bpd) to 1.10 million bpd and indicated the market would be in slight surplus in 2020.

A rally in equity markets around the world on growing expectations that global economies will take action against slowing growth also gave oil prices a floor.

China’s new lending reference rate was set slightly lower on Tuesday after the central bank announced interest rate reforms designed to reduce corporate borrowing costs. Germany’s right-left coalition government said it would be prepared to ditch its balanced budget rule and take on new debt to counter a possible recession.

“China’s announcement of key interest rate reforms over the weekend has driven expectations of an imminent reduction in corporate borrowing costs,” financial services firm Cantor Fitzgerald said in a note.

Traders were also watching for signs of tension in the Middle East after the United States called the release of an Iranian tanker at the centre of a confrontation between Iran and Washington unfortunate, warning Greece and Mediterranean ports against helping the vessel.

Copyright Reuters, 2019

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