Oil dips as trade wars weigh, but looming Iran sanctions prevent bigger fall

An oil well pump jack is seen at an oil field supply yard near Denver, Colorado, U.S., February 2, 2015. (Reuters pic)

SINGAPORE: Oil prices dipped on Friday on concerns that the trade war between the United States and China could intensify, although looming US sanctions against Iran’s oil exports and falling Venezuelan output prevented bigger falls.

International Brent crude oil futures were at US$77.64 per barrel at 0654 GMT, down 13 cents from their last close.

US West Texas Intermediate (WTI) crude futures were unchanged at US$70.25 a barrel.

Analysts cautioned that trade disputes between the United States and other major economies, especially China and the European Union, could start to drag on economic growth and, by extension, fuel demand.

“You have to wonder if it (crude) can sustain these prices in a world where President Trump doubles down on his battle with the EU and China at the same time,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

US President Donald Trump is prepared to ramp up the trade row with China and has told aides he is ready to impose tariffs on US$200 billion more in Chinese imports as soon as a public comment period on the plan ends next week, Bloomberg reported on Thursday.

“Assuming the trade war is about to escalate again, the questions traders will be wondering about is global growth (and) demand for crude,” McKenna said.

Despite this, markets remain relatively tight.

With Venezuelan supply falling sharply and concerns around US sanctions against Iran that will target its oil exports from November, crude markets in August are on track to post a more than 4% rise for Brent and a 2% increase for WTI.

“The November deadline to comply with the US demands for an Iran oil embargo is moving closer, and in anticipation, buyers seemingly have begun reducing their purchases,” said Norbert Ruecker, head of commodity research at Swiss bank Julius Baer.

“The situation in Venezuela remains equally worrying,” he added.

In a sign of a tightening market, the amount of unsold crude stored in the Atlantic basin has dwindled from around 30 cargoes to just a handful in recent weeks, trade data showed.

“Brent prices will exceed US$80 per barrel before the end of the year,” said US bank Jefferies on Friday.

Shanghai delivery

Meanwhile, China’s Shanghai crude oil futures, launched in March, will see delivery of their first contract on Friday.

The speed of Shanghai crude’s take-up has surprised many traders and analysts.

Among the three major crude benchmarks – WTI, Brent and Shanghai – China’s front-month crude futures now make up a share of almost 15% in terms of monthly volumes.

Traders said Shanghai’s fast rise reflects China’s importance as the world’s biggest oil importer. It is also part of a policy by Beijing to increasingly use the yuan currency in global trade, especially during times of economic disputes with the United States.

Since its launch in March, front-month Shanghai crude oil futures have gained almost 10% in value to 481 yuan (US$70.31) per barrel.