Oil falls as US-China trade fears overshadow supply drop

09 May, 2019

The trade dispute between the world's two biggest economies and a sharp drop in global equity markets outweighed geopolitical tensions and supply cuts that have lowered global supplies from Latin America, Africa and the Middle East.

Brent crude oil futures fell 23 cents in seesaw trade to $70.14 a barrel by 11:50 a.m. CST, headed for their second straight weekly loss.

US West Texas Intermediate (WTI) crude futures fell 46 cents to $61.66 per barrel.

The row has already dragged on economic growth in Asia and a breakdown in Sino-American negotiations could call global crude demand forecasts into question, said John Kilduff, a partner at Again Capital Management LLC.

The US Energy Information Administration expects global oil demand to rise by 1.4 million barrels per day (bpd) this year.

"It's why OPEC is being a bit stingy with barrels," Kilduff said, referring to output cuts by the Organization of Petroleum Exporting Countries and allies including Russia.

"They don't want to step into that situation if the trade talks go off the rails."

OPEC's top producer Saudi Arabia has been reluctant to add more barrels to global supply because it fears a price crash, even as the organization is unsure of global supplies for the second half of the year, OPEC sources said.

US sanctions on Venezuela and Iran, and threats to oil supplies in Nigeria in Libya have supported oil prices, mitigating the impact of the trade dispute, analysts said.

Brent and WTI have risen more than 30 percent so far this year.

"The supply uncertainty is what's holding the (US oil) market above $60 a barrel," said Phillip Streible, senior market strategist at RJO Futures in Chicago. "The demand uncertainty is what has it in the red today. But we're holding pretty good."

Earlier this week, data showing a surprise drop in US crude inventories also buoyed prices.

The US tariffs on $200 billion of Chinese goods would rise to 25 percent without a deal on Friday.

China has threatened to retaliate, triggering a flight to safety among investors.

China has asked the United States to meet it halfway, and its chief negotiator is in Washington for two days of talks.

On Wednesday, US President Donald Trump said China "broke the deal" and would face stiff tariffs if no agreement is reached.

Copyright Reuters, 2019

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