Oil Price Fundamental Daily Forecast – US-China Trade Battle Heats Up = Are Beijing Tariffs on US Crude Next?
U.S. West Texas Intermediate and international bench-mark Brent crude oil futures are trading mixed in limited action. Although there is some general nervousness over the U.S.-China trade dispute, most traders agree that yesterday’s government report is exerting the most pressure on the market.
At 0734 GMT, August WTI crude oil is trading $73.02, up 0.07 or +0.10% and September Brent crude oil is at $77.17, down $0.22 or -0.28%.
On Thursday, the U.S. Energy Administration (EIA) announced that U.S. crude inventories had risen 1.2 million barrels in the week to June 29, to 417.88 million barrels. This news was generally thought of as bearish because traders had been pricing-in a 4.4 million barrel decline.
Additionally, gasoline stockpiles fell by 1.5 million barrels for the week, but distillate stockpiles were up by 100,000 barrels for the week, according to the EIA. Traders were looking for a decrease of 2.5 million barrels for gasoline, and 250,000 barrels for distillate stocks.
Forecast
Traders are paying attention to the escalating trade dispute between the United States and China although the current products caught in the tariff war are not energy-related. However, oil traders should continue to monitor the events because Beijing has threatened a 25 percent tariff on U.S. crude imports, although it has not specified an introduction date.
According to the latest estimates, American crude shipments to China are around 400,000 barrels per day (bpd), worth $1 billion a month at current prices.
An additional fact to consider: Tariffs would make U.S. oil uncompetitive in China. This means China would begin buying more oil from the Middle East or West Africa.
How close is China to imposing the tariff on U.S. crude oil? On Thursday, an executive from China’s Dongming Petrochemical Group said he expected Beijing to soon impose the tariff on U.S. oil imports. He added that his refinery had cancelled U.S. crude imports and would switch to Middle East or West African supplies instead.
In other news, potential supply shortages continue to be the hot topic. Venezuela is expected to lose another 400,000 bpd by year-end with production going to below 1 million bpd. Additionally, about 300,000 bpd of Libyan oil has been taken off the market.
The major story remains the looming supply shortages due to U.S. sanctions against Iran. By some estimates, about 1.7 to 2 million bpd of crude and condensate would be cut out of markets once the sanctions are implemented.
Saudi Arabia and Russia have agreed to increase output, but most of their 1 million bpd increase was expected to cover the short fall from Iran. At this time, there may not be enough spare capacity to cover the losses from Venezuela and Libya.
This article was originally posted on FX Empire
