China only recently began importing oil from the U.S. It is a drop in the bucket and if they don't get oil from the U.S., they must get it from somewhere else. The impact on total global demand is therefore zero. - Dan
LONDON (Reuters) - Oil fell on Tuesday as an escalating trade dispute between the United States and China unleashed sharp selloffs in many global markets.
The crude price was also dented by expectations that producer group OPEC and partner Russia will gradually increase output in order to make up for falls in Venezuela and potential shortfalls from Iran, which is facing U.S. sanctions related to its nuclear activity.
The United States and China are threatening punitive tariffs on each other's exports, which could include oil supplies, which sent Chinese stocks to their lowest in almost a year and kept European indices and other industrial commodities such as copper and nickel under pressure.
Brent crude futures (LCOc1) fell 62 cents to $74.72 a barrel by 1120 GMT, while U.S. crude futures (CLc1) was down $1.08 to $64.77 a barrel.
Oil traders are closely watching a threat by China to react to U.S. tariffs by putting a 25 percent duty on U.S. crude oil imports, which have been surging since 2017 to a value of almost $1 billion per month.
Global oil demand will be revised downwards and as such oil will not be immune from all of the potential negative impact of international trade wars.
Energy consultancy Wood Mackenzie said the United States "would find it hard to find an alternative market that is as big as China". It said China takes around 20 percent of all U.S. crude exports.
The Organization of the Petroleum Exporting Countries together with a group of non-OPEC producers including Russia started withholding oil supplies in 2017 to prop up prices.
Following a sharp increase in crude prices from their sub-$30 per barrel lows in 2016, the group on June 22 will meet in Vienna to discuss supply policy.
Greg McKenna, chief market strategist at futures brokerage AxiTrader said there would likely be oil price volatility in the week ahead of the meeting.
"OPEC is fractured or fracturing," McKenna said, as Iran, Venezuela, and Iraq "seek to veto the production increase".
"We could be seeing the long-term relationship between the Saudis and Russia pushing OPEC into second place," he added.
Global oil demand is set to stay strong in the second half of 2018, an OPEC technical panel forecast this week, suggesting the market could absorb extra production from the group.
Oil Price - June 19
Oil Price - June 19
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - June 19
Trump Ups The Ante By Phil Flynn at 9:45 AM ET
Trade war fears are escalating after President Donald Trump hit back against the Chinese by asking his administration to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent. This came after markets started to shake off concerns about the U.S. imposing a 25 percent tariff on up to $50 billion of Chinese products. China then retaliated and now President Trump is raising the stakes with a new tariff threat and the Chinese are running out of U.S. imports to put a tariff on. Oil of course is in the Chinese crosshairs and the market’s concern is simply that this trade war will hurt growth and slow energy demand. While that remains a possibility, we expect global supply to get a lot tighter in the coming weeks. The API will release a report that is widely expected to show another drop in U.S. crude supply as well as record-breaking demand.
U.S. supply should fall below the average range this week as record breaking gasoline demand keeps the market buoyant. Even as the Energy Information Administration predicted that crude-oil production from seven major U.S. shale plays is expected to see a climb of 141,000 barrels a day in July to 7.339 million barrels a day, concerns that the lack of pipeline capacity in the Permian basin is going to force producers to put on the brakes. It’s great to produce oil but it does not help if there is no place for it to go. Plus, because of the bottle necks you are seeing, Permian Basin crude sell well below the WTI market prices. OIL Price reports that the price discount for oil in Midland will widen from around $9 per barrel this month, to between $14.50 and $17 per barrel for much of 2019. Goldman Sachs (NYSE:GS) predicts that when the current slate of pipeline projects come online, the discount will vanish by 2020, but until then, the problem could grow progressively worse. < The "netback price" of oil in the Permian Basin will be lower for upstream companies that aren't hedged and do not have firm capacity agreements with midstream companies. This issue will not have a MAJOR impact on most of the Sweet 16 or any of the companies in our Small-Cap Growth Portfolio. Plus, oil will not be "stranded" in the Permian. There are plenty of trucks in Texas to haul it out, but it will cost more. - Dan
The break in price is also going to make this week’s OPEC/NON-OPEC meeting more exciting. Despite the protestations from Iran, Iraq and Venezuela the group will raise output because Russia and Saudi Arabia believe it is time. Yet, is anyone concerned that with an increase, global spare capacity may fall close to 1.5% or lower? Maybe not right now but after a disruption they sure will. < Russia and Saudi Arabia are the only countries with significant production capacity above what they are producing today and even those two cannot raise production very fast. - Dan
My buddies at Gas Buddy report that for the third straight week, average gasoline prices have moved lower, falling 2.8 cents to $2.888 per gallon yesterday, according to GasBuddy’s survey of 135,000 gas stations, incorporating over one million price reports daily. 47 of the nation's 50 states saw average gas prices decline. The unlucky three that saw prices rise were Michigan, Indiana and Vermont. With the U.S. unemployment rate at historic lows and wages rising, consumer confidence high record demand for gasoline should continue.
Trade war fears are escalating after President Donald Trump hit back against the Chinese by asking his administration to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent. This came after markets started to shake off concerns about the U.S. imposing a 25 percent tariff on up to $50 billion of Chinese products. China then retaliated and now President Trump is raising the stakes with a new tariff threat and the Chinese are running out of U.S. imports to put a tariff on. Oil of course is in the Chinese crosshairs and the market’s concern is simply that this trade war will hurt growth and slow energy demand. While that remains a possibility, we expect global supply to get a lot tighter in the coming weeks. The API will release a report that is widely expected to show another drop in U.S. crude supply as well as record-breaking demand.
U.S. supply should fall below the average range this week as record breaking gasoline demand keeps the market buoyant. Even as the Energy Information Administration predicted that crude-oil production from seven major U.S. shale plays is expected to see a climb of 141,000 barrels a day in July to 7.339 million barrels a day, concerns that the lack of pipeline capacity in the Permian basin is going to force producers to put on the brakes. It’s great to produce oil but it does not help if there is no place for it to go. Plus, because of the bottle necks you are seeing, Permian Basin crude sell well below the WTI market prices. OIL Price reports that the price discount for oil in Midland will widen from around $9 per barrel this month, to between $14.50 and $17 per barrel for much of 2019. Goldman Sachs (NYSE:GS) predicts that when the current slate of pipeline projects come online, the discount will vanish by 2020, but until then, the problem could grow progressively worse. < The "netback price" of oil in the Permian Basin will be lower for upstream companies that aren't hedged and do not have firm capacity agreements with midstream companies. This issue will not have a MAJOR impact on most of the Sweet 16 or any of the companies in our Small-Cap Growth Portfolio. Plus, oil will not be "stranded" in the Permian. There are plenty of trucks in Texas to haul it out, but it will cost more. - Dan
The break in price is also going to make this week’s OPEC/NON-OPEC meeting more exciting. Despite the protestations from Iran, Iraq and Venezuela the group will raise output because Russia and Saudi Arabia believe it is time. Yet, is anyone concerned that with an increase, global spare capacity may fall close to 1.5% or lower? Maybe not right now but after a disruption they sure will. < Russia and Saudi Arabia are the only countries with significant production capacity above what they are producing today and even those two cannot raise production very fast. - Dan
My buddies at Gas Buddy report that for the third straight week, average gasoline prices have moved lower, falling 2.8 cents to $2.888 per gallon yesterday, according to GasBuddy’s survey of 135,000 gas stations, incorporating over one million price reports daily. 47 of the nation's 50 states saw average gas prices decline. The unlucky three that saw prices rise were Michigan, Indiana and Vermont. With the U.S. unemployment rate at historic lows and wages rising, consumer confidence high record demand for gasoline should continue.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group