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Oil Steadies on Signals Trump May Expand Trade Offensive

Jacquelyn Melinek
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Iraq Says OPEC+ to Mull More Cuts, Jarring With Group Stance

(Bloomberg) -- Oil ended slightly lower amid concern that U.S. President Donald Trump may expand his trade offensive, multiplying the economic headwinds already threatening global energy demand.

Futures fell 0.1% in New York on Tuesday after earlier rising as much as 1.2%. As Trump addressed the New York Economic Club, analysts listened for indications about the pace of trade negotiations with China. Meanwhile, the U.S. trade czar prepared to give the president ammunition to hit some European nations with targeted sanctions.

The U.S.-China trade war is casting a pall over the the global growth that underpins energy demand. Morgan Stanley and PVM Oil Associates Ltd. warned that crude prices will slump next year unless OPEC and allied oil producers deepen output cuts.

“We were big on early morning optimism that Trump would have something to say about the trade negotiations,” said Bob Yawger, futures division director at Mizuho Securities in New York. “He didn’t say if anything bad was going to happen or anything good for that matter either so the market was disappointed.”

Morgan Stanley said the international crude benchmark may tumble by almost 30% to $45 a barrel if the so-called OPEC+ alliance doesn’t make steeper supply cuts. Citigroup Inc. and BNP Paribas SA predicted a slide to the low $50s.

“If we don’t make a deal, we’re going to substantially raise those tariffs,” Trump said. “They’re going to be raised very substantially. And that’s going to be true for other countries that mistreat us too.”

See also: OPEC+ Risks Oil Slump Below $50 Without Deeper Supply Curbs

West Texas Intermediate for December delivery fell 6 cents to settle at $56.80 a barrel on the New York Mercantile Exchange.

Brent for January delivery fell 12 cents to close at $62.06 on the London-based ICE Futures Europe Exchange, and traded at a $5.21 premium to WTI for the same month.

The OPEC+ group will meet in Vienna on Dec. 5 and 6 amid questions over whether the biggest producers will be pushing for more output reductions. Saudi Arabia appears to have little appetite for further sacrifices, while others in the alliance -- particularly Iraq and Nigeria -- haven’t delivered on their current commitments. Russia has also signaled it’s not keen on additional cuts.

“The oil market is in a holding pattern -- it cannot make up its mind which way to go in future,” said Tamas Varga, an analyst at PVM in London. “All OPEC can do is decrease their output next year if they are serious about reducing stocks. Anything else would send out the wrong message.”

To contact the reporter on this story: Jacquelyn Melinek in New York at jmelinek@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Mike Jeffers, Millie Munshi

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