U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are under pressure at the start of the week with sellers picking up where they left off late last week before Monday’s U.S. holiday.
After being underpinned early last week by the announcement of a resumption of trade talks between the United States and China, pessimism over the deepening trade war between the two economic powerhouses has crept into the market, driving prices lower. Traders are also saying that soft economic data from South Korea is raising concerns over emerging markets as well as increased OPEC production.
Trade Talks Overshadowed by New Tariffs
The resumption of trade talks between the United States and China that are set to resume on September 5 are being overshadowed by the imposition of new tariffs from the United States and China that began on September. The U.S. imposed 15% tariffs on a variety of Chinese goods, and China began to impose new duties on a $75 billion target list. These move erased some of the optimism last week’s announcements brought to the markets.
South Korean Posts Weaker Consumer Inflation
Also weighing on prices is a weaker-than-expected South Korean inflation report. The numbers from the emerging country showed the economy expanded less than estimated during the second quarter as exports were revised down in the face of the prolonged U.S.-China trade dispute, central bank data showed on Tuesday.
According to the report, South Korea’s year-on-year inflation in August dipped to an all-time low as farm products price plunged on improved weather and weak consumer demand, strengthening the case for another central bank rate cut as early as next month.
The consumer price index was unchanged in August from a year earlier, Statistics Korea data showed on Tuesday, missing a 0.2 percent rise predicted by Reuters and marking the lowest since the country began releasing inflation data in 1965.
OPEC Production Controls May Be Weakening
Rising production from Iraq and Nigeria may be early signs that the plan led by OPEC to reduce output may be weakening, potentially putting more supply on the world market. Additionally, Russian oil production in August rose to 11.294 million barrels per day (bpd), topping the rate Moscow pledged to cap output at in its pact with Saudi Arabia and other major OPEC producers.
The theme of the day is likely to be bearish unless there is good news about U.S.-China trade, and that’s not likely to happen until the two side sit down at the negotiations table later in the week. Until then, oil traders will have to wait for the supply reports from the American Petroleum Institute on Wednesday and the U.S. Energy Information Administration on Thursday. Both reports are being delayed one day due to Monday’s holiday.
Traders are hoping another large inventory draw will slow down the selling pressure, or turn the markets around.
This article was originally posted on FX Empire
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