Oil barrels sit stacked inside the polyethylene plant (Photographer: Nicolo Filippo Rosso/Bloomberg)

Crude Slips on U.S.-China Trade Spat, Possible OPEC Output Boost

(Bloomberg) -- Crude dropped as an escalating trade war between the world’s two largest economies imperils energy demand just as OPEC and allied oil producers move toward boosting output.

Futures barely budged from the settlement after the American Petroleum Institute was said to report U.S. crude stockpiles slipped last week, while gasoline supplies edged higher. The session was dominated by China vowing to “forcefully” retaliate after U.S. President Donald Trump threatened tariffs on $200 billion in Chinese imports. The gloom spread to equity markets as well, with almost two-thirds of the stocks in S&P 500 Index trading down.

Meanwhile, Saudi Arabia and Russia are pushing 22 other major oil-producing nations to relax production limits when the group convenes later this week.

“The market is in a holding pattern awaiting OPEC decisions and tethered very closely to the stock market, which is crumbling,” said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida.

This week’s gathering of the Organization of Petroleum Exporting Countries and allied oil producers in Vienna may be one of the most contentious in recent memory. Russian Energy Minister Alexander Novak is advocating a 1.5 million-barrel increase in collective daily output, while Iran, Iraq and Venezuela argue it’s too soon to back away from the historic caps that helped erode a worldwide glut.

Iran rejected a potential compromise at OPEC, saying that it won’t support even a small increase in oil production when the cartel meets on Friday.

A measure of oil market volatility climbed to the highest level in three weeks.

West Texas Intermediate crude for July delivery, which expires on Wednesday, traded at $65.14 a barrel at 4:39 p.m. after settling at $65.07 a barrel on the New York Mercantile Exchange.

Brent futures for August settlement declined 26 cents to end the session at $75.08 on the London-based ICE Futures Europe exchange. Brent’s premium to WTI for the same month was at $10.18.

In remarks in Washington on Tuesday, Trump signaled skepticism that talks with China will end the disagreement. Trump on Monday evening ordered up identification of $200 billion in Chinese imports for additional tariffs of 10 percent -- with another $200 billion after that if Beijing retaliates.

“We seem to be taking a hit again from the ante being raised in the U.S.-China trade war,” said John Kilduff, a partner at New York-based hedge fund Again Capital LLC. “And then of course the looming OPEC meeting: Russia’s reiterated that they are looking for a big increase.”

The API was said to report nationwide crude stockpiles fell 3.02 million barrels last week, while gasoline supplies climbed 2.11 million barrels.

U.S. crude stockpiles probably fell by 2.5 million barrels last week, according to a Bloomberg survey ahead of the release of Energy Information Administration data on Wednesday. At the same time, inventories at the biggest U.S. storage complex in Cushing, Oklahoma, decreased by 450,000 barrels last week, according to a forecast compiled by Bloomberg.

Other oil-market news:

  • Gasoline futures dropped 0.8 percent to settle at $2.0379 a gallon.
  • OPEC and other oil-producing countries are not discussing prices, but output levels that would achieve market stability and prevent price fluctuations, state-run KUNA news agency reported, citing Kuwait Oil Minister Bakheet Al-Rashidi.

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