Monday 30, July 2018 by Bloomberg

Oil heads for a fourth weekly drop on trade war fears


Oil is poised for a fourth weekly decline as the unexpected halt in Saudi shipments via a Red Sea waterway was seen as short-lived, while concerns lingered over how the US-China trade spat will affect demand.

Futures are headed for a 1.2 per cent decline this week. Trade concerns continue to cloud investor sentiment after the world’s top finance chiefs warned that the escalating tensions threatened global growth. Meanwhile, Saudi Arabia temporarily halted oil shipments via the Bab el-Mandeb Strait, a key shipping lane for crude at the southern tip of the Red Sea, after it said two tankers were attacked by Yemen’s Houthi militia.

Oil has lost about six per cent this month as a trade battle between the US and China shows no signs of letting up, raising fears it’ll damp oil demand growth even as tensions between the US and the European Union eased. Investors are also watching production from OPEC to see if the group can offset losses from Iran as the US reimposes sanctions. President Donald Trump warned of “consequences” if Iran’s president Hassan Rouhani again threatened America.

The Saudi oil export halt is “likely to be short-lived because they can’t cease oil shipments indefinitely,” said Barnabas Gan, a Singapore-based economist at Oversea-Chinese Banking Corp. “Crude oil will be affected by how the market views trade activities between the two largest economies.”

West Texas Intermediate crude for September delivery was down six cents at $69.55 a barrel on the New York Mercantile Exchange at 7:33 a.m. in London. Prices are headed for a 6.1 per cent monthly loss. Total volume traded was 64 per cent below the 100-day average.

Brent for September settlement was down seven cents to $74.47 a barrel on the London-based ICE Futures Europe exchange, on course for a two per cent gain this week. The global benchmark was at a $4.92 premium to WTI.

Futures for September delivery gained 0.7 per cent to 507.1 yuan a barrel on the Shanghai International Energy Exchange, heading for a 2.8 per cent weekly gain.

Talks of the trade war dominated discussions during the Group of 20 nations summit last weekend as Trump prepares to slap tariffs on $500 billion of Chinese goods. Finance ministers and central bankers from G-20 warned of risks including financial vulnerability as well as structurally weak growth, according to the statement published by the group after their two-day summit in Buenos Aires.

The simmering tensions between the US and top oil buyer China threatens to  strain growth at Asia’s largest economy, which grew 6.7 per cent in the second quarter—the slowest expansion since 2016.

Prices were buoyed in the latter half of the week after two Saudi vessels, each with a capacity of two million barrels of oil belong to the Saudi National Shipping Co., were attacked by Yemeni Houthi militia. The Bab el-Mandeb Strait, off the shores of Yemen, Djibouti, and Eritrea, connects the Red Sea with the Arabian Sea and is one of the world’s major waterways for crude oil and other petroleum products.

Adding fuel to the rally are US crude inventories at the lowest since 2015, while the war of words between US President Donald Trump and President Hassan Rouhani of Iran shined a spotlight on a vital oil route, the Strait of Hormuz linking the Persian Gulf with global waterways.

Rouhani warned the US against threatening Iran oil exports and called for improved relations with neighbors, including rival Saudi Arabia. Trump upbraided the Iran president in a tweet that added emphasis with its all-caps format.

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