Oil dips as China-US trade tensions deepen

Marco Green
September 18, 2018

A pump jack operates in the Permian Basin oil production area near Wink, Texas U.S. August 22, 2018.

The tariffs are likely to limit economic activity in both China and the United States, potentially hitting growth in demand for oil as less fuel is consumed to move goods for trade.

The Saudis are said to be comfortable with the current oil prices, and even with Brent Crude rising past $80 a barrel, at least in the short term, as the oil market and global supply will be adjusting to significantly reduced Iranian oil exports, Bloomberg reported on Tuesday, citing people familiar with Saudi Arabia's thinking.

Brent crude futures dropped 44 cents, or 0.6 percent, to $77.61 per barrel by 0424 GMT.

China said it had no choice but to retaliate against new US trade measures after Trump imposed 10 percent tariffs on about $200 billion worth of Chinese imports.

USA stock indexes broadly fell yesterday, weighing on oil futures, on expectations that Trump would go ahead with the new tariffs and that Beijing would retaliate.

The escalating trade row is raising concerns about the potential for slower growth in oil consumption, offsetting supply concerns stemming from upcoming USA sanctions on Iran over its nuclear programme.

US President Donald Trump has called for OPEC members, primarily US ally Saudi Arabia, to raise their production, and warned importers to stop buying oil from Iran or face American sanctions.

He did not specify how crude producers would compensate for declining exports from Iran, with new USA sanctions due to hit the Islamic republic's oil industry on November 4.

The head of OPEC said Tuesday that Iran remains "a very important member" of the oil cartel, as Tehran braces for a new round of United States sanctions partially targeting its crude exports.

Refiners in India, Iran's second largest crude buyer will cut their monthly crude loadings from Iran for September and October by almost half from earlier this year.

Since spring when the Trump Administration said it would impose the sanctions, crude traders have priced in a risk premium reflecting the supply shortages that may occur when exports from Iran, the third-largest Organisation of Petroleum Exporting Countries (OPEC) producer, are cut.

U.S. Energy Secretary Rick Perry said last week in Moscow that he did not foresee any price spikes once sanctions came into effect, and was positive about Saudi output.

State oil giant Saudi Aramco will spend more than 500 billion riyals ($133 billion) on oil and gas drilling over the next decade, a senior company executive said.

Other reports by Click Lancashire

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