Oil slumps as China threatens duty on USA crude imports

Cornelia Mascio
Giugno 19, 2018

This was in response to reports that top suppliers Saudi Arabia and Russian Federation would likely increase production.

US crude oil rose 79 cents a barrel to settle at $65.85.

The Russia-Suadi Arabia team-up that helped take oil prices back down recently could be heading into an unexpected rough patch, with other key OPEC members voicing their discontent over the recent suggestion that OPEC may lift its current oil production restrictions, with Iran, Iraq, and Venezuela all stating over the weekend that they will reject the production limit hike at OPEC's upcoming meeting this week in Vienna. Decisions on OPEC production need to be unanimous, and Saudi Arabia may have some tough convincing to do.

China imposed import duties on US products on Friday, and suggested that crude oil tariffs were planned.

U.S. crude production from major shale formations is expected to rise 141,000 barrels per day (bpd) in July from the previous month to a record 7.34 million bpd, the U.S. Energy Information Administration (EIA) said in a monthly productivity report on Monday.

"Volatility is going to be pretty high this week", said Bob Yawger, director of energy futures at Mizuho in NY. Indications from OPEC members and other large producers on the scale of potential production increases are likely to drive the market, he said. Russian Federation and OPEC kingpin Saudi Arabia are pushing for higher output.

"That production will be increased in the second half of the year is considered certain - the only question is by how much".

Rising output from US shale has stoked worries about potential oversupply. Five U.S. shale executives were set to speak at the OPEC seminar this week, but three, including Continental Resources Chief Executive Harold Hamm, have withdrawn.

Despite potential downward pressure from large producers increasing output, Goldman Sachs maintained its bullish outlook.

"The focus will be on replacing Venezuelan losses", the bank said. U.S. President Donald Trump last week pushed ahead with tariffs on $50 billion of Chinese imports, starting on July 6.

"It's more of a threat than anything", said Joe McMonigle, senior energy policy analyst at Hedgeye Potomac Research. "China trade tensions escalated last Friday", said Benjamin Lu of Singapore-based futures brokerage Phillip Futures.

USA bank Morgan Stanley said in a note to clients that the trade spat meant that economic "downside risks have risen".

US oil exports have boomed in the last two years as production has surged, with China becoming the biggest customer of American crude shipments in a business that is now worth $1 billion per month.

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