Published: Mon, July 09, 2018
Finance | By Claude Patterson

Oil dips in nervous trading as US-China trade war looms

Oil dips in nervous trading as US-China trade war looms

U.S. West Texas Intermediate (WTI) crude futures were down 14 cents, or 0.2 percent, at $72.80.

The escalating trade friction between the USA and China, two of the world's biggest economies, remained the central focus among participants.

The inventories at Cushing, which is the delivery point of United States crude futures, plummeted to their lowest in three and a half years, according to the data that was shown on Thursday. China's Ministry of Commerce stated that it had no choice but to respond to the USA, which they claim had "launched the largest war in economic history".

Most Indian refineries are created to process heavy, high-sulphur Iranian crude while bulk of the growth in American supply has been in light, low-sulphur oil produced in shale developments.

On Friday, the U.S. tariffs on $34 billion worth of Chinese goods were implemented.

However, oil traders should continue to monitor the events because Beijing has threatened a 25 percent tariff on USA crude imports, although it has not specified an introduction date.

In an alarming sign for Washington, and a welcome development for Iran, some locals have decided not to see which way the dice may fall.

China says it will immediately retaliate, and U.S. President Trump said on Thursday he may ultimately impose tariffs on more than a half-trillion dollars worth of Chinese goods.

He added his refinery had canceled US crude orders and would switch to Middle East or West African supplies instead.

US energy companies last week increased the number of rigs drilling for oil by five to 863, up 100 year-on-year, General Electric Co's (GE.N) Baker Hughes energy services firm said in its closely followed report late on Friday. "They (Chinese importers) are not going to be intimidated, or swayed by USA sanctions".

The report said Hojjat al-Islam Mojtaba Zolnour, a hardline member of Iran's parliament, had made the allegation in an interview with a local newspaper.

The Organization of the Petroleum Exporting Countries and other countries agreed in June to a modest increase in output to dampen oil prices, which recently hit 3-1/2 year highs.

"Iran's exports are some 2.7 million bpd, including condensate", it noted.

Rather than increase, the number of Iranians naturalized in the US declined after the deal was signed, from 10,344 in 2015 to 9,507 in 2016, according to the Department of Homeland Security.

Oil prices gained on Monday following the data last week that showed USA crude inventories slumped to their lowest in as long as three years.

While next steps remain unclear, the potential outcome for the U.S. isn't: should China fully pivot away from United States exports and replace them with Iranian product, the USA trade deficit will resume rising, further adding to the pressure of what is Trump's biggest economic hurdle: the double USA deficits. However, if the ongoing pipeline bottleneck in the Permian is not resolved soon, said solace will prove to be short-lived.

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