Oil gyrates below $62 as trade war counters straining supplies

By Alex Nussbaum and Alex Longley on 5/10/2019

NEW YORK and LONDON (Bloomberg) -- Oil fluctuated near its lowest point since early April, as President Donald Trump’s latest trade-war escalation raised fears about the economy even as a shutdown of a key North Sea platform added to supply disruptions.

Futures in New York gyrated between gains and losses on Friday, holding just below $62/bbl. Trump tweeted that he saw “no need to rush" to a deal in the dispute with China, hours after increasing tariffs. In Norway, Equinor said its Oseberg Field Center has been shut since Wednesday afternoon, affecting fields with about 6% of the nation’s output.

U.S. oil is on track for its third straight weekly loss as investors weighed the impacts of Trump’s foreign policies. Rising tension between Washington and Iran, and the likelihood of output from Venezuela continuing to drop amid U.S. sanctions point to tighter markets. Still, the world could need less oil than expected if the U.S.-China trade standoff hurts global economic growth.

The trade flare-up “raises a number of questions in terms of the economic outlook and therefore in terms of oil and demand,’’ Harry Tchilinguirian, head commodity markets strategist at BNP Paribas in London, said by telephone. ‘‘As you have an escalation of tension, you also have an element of uncertainty which leads to people taking off risks.’’

July Brent crude jumped to a $1/bbl premium to the August contract on Friday―a situation known as backwardation―suggesting supply fears remain a dominant force.

West Texas Intermediate crude for June delivery fell $0.11 to $61.59/bbl on the New York Mercantile Exchange, after gaining as much as 1.3% earlier.

Brent for July settlement rose $0.07, or 0.1%, to $70.46/bbl on the London-based ICE Futures Europe exchange. The global benchmark contract was trading at an $8.58 premium to WTI.

Trump boosted tariffs on $200 billion worth of Chinese goods on Friday and threatened to impose more penalties, even as negotiations between the two sides continued in Washington. There’s “no need to rush” a deal, Trump said on Twitter, despite the uncertainty roiling markets. “Tariffs will make our country much stronger, not weaker. Just sit back and watch!” he wrote on Twitter.

On the supply side, contaminated Russian shipments and leaks in a key Nigerian pipeline have amplified the restrictions on Iran and Venezuela’s exports. It remains uncertain to what extent Saudi Arabia will increase its production to fill the gap. Brent’s three-month oil time-spread is reflecting the shortages, with the widest backwardation in almost five years.

“Prices are finding fundamental support from the tightening supply, as also indicated by the pronounced state of backwardation in the Brent forward curve,” Commerzbank AG analysts including Carsten Fritsch wrote in a report.

Oil Market News

Gasoline futures climbed 0.7% to $1.9892/gal. IFM Global Infrastructure Fund agreed to buy Buckeye Partners LP, an owner of U.S. oil pipelines and terminals, for $6.5 billion. Commodities trader Trafigura estimates there will be about 350,000 bpd of excess high-sulfur fuel oil and a similar shortage of compliant low-sulfur product at the start of next year.

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