Published: Mon, July 09, 2018
Business | By Eloise Houston

Oil rises as market tightens

Oil rises as market tightens

"If China imposes tariffs, their refineries won't buy US crude since it would cost more", Sandy Fielden, director of research for commodities and energy at Morningstar Inc., said by telephone.

The United States and China have started a trade war on Friday, introducing bilateral tariffs worth 34 billion Dollars, while not showing willingness to start talks with a view to reaching a ceasefire.

The concerns that oil prices will fall due to the US-China trade conflict have nearly disappeared.

Beijing has threatened a 25 percent tariff on USA crude imports, although it has not specified a date.

If Beijing does impose tariffs on American oil, it could put downward pressure on the price of West Texas Intermediate crude, the USA benchmark, and may weaken its spread to Brent oil, the global market standard. At the same time, the U.S. president has been exerting pressure on his European allies to stop buying Iranian oil. USA crude CLc1 was down 25 cents at $73.55.

US crude inventories rose by 1.2 million barrels in the week ending June 29, the Energy Information Administration said on Thursday, much higher than analysts' expectations for a decrease of 3.5 million barrels.

The analysts estimate that every million barrel per day shift in supply and demand balances would push oil prices by $17 a barrel on average. Traders were looking for a decrease of 2.5 million barrels for gasoline, and 250,000 barrels for distillate stocks.

According to Japan Times, in a harbinger of what's to come, an executive from China's Dongming Petrochemical Group, an independent refiner from Shandong province, said his refinery had already cancelled USA crude orders.

Earlier this month, Reuters also reported that South Korea had upped crude oil imports from Kazakhstan, already looking for alternative supplies as the November 4 deadline for the sanctions draws nearer. In response to this, members of OPEC reportedly agreed to produce an additional one million barrels of crude oil on a daily basis to keep the prices stable on the market.

He added his refinery had cancelled US crude orders and would switch to Middle East or West African supplies instead.

In other news, potential supply shortages continue to be the hot topic.

However, it warned that this would leave the global market with less than 1 million bpd of capacity left to meet all other contingencies.

The major story remains the looming supply shortages due to US sanctions against Iran.

"Iran's exports are some 2.7-million barrels a day, including condensate", it noted.

OPEC and other producers including Russian Federation agreed last month to boost output by around a million barrels a day, reversing course after supply cuts that cleared a global glut and boosted prices. At this time, there may not be enough spare capacity to cover the losses from Venezuela and Libya.

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