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Oil Dips as Trade Standoff Muddies Outlook for Economic Growth

Oil nudged higher Tuesday as the market continued to focus on OPEC nations leaning towards extending production cuts.

Oil Dips as Trade Standoff Muddies Outlook for Economic Growth
An oil pumping jack, also known as a ‘nodding donkey,’ operates in an oil field near Samara, Russia. (Photographer: Andrey Rudakov/Bloomberg)

(Bloomberg) -- Oil closed lower amid warnings that the U.S.-China trade dispute may take an increasing toll on the economy.

Futures closed 0.2% lower in New York on Tuesday. Federal Reserve Bank of Boston President Eric Rosengren said the trade standoff is adding a downside risk to the central bank’s forecasts, while the Paris-based Organization for Economic Cooperation and Development downgraded its projection for global growth. Meanwhile, the industry-funded American Petroleum Institute reported U.S. crude stockpiles rose 2.4 million barrels last week, according to people familiar with the data.

International benchmark Brent crude finished the day 0.3% higher, as fighting in Saudi Arabia and Libya and a pipeline outage in Nigeria brought more reminders of the fragile state of supplies.

Oil Dips as Trade Standoff Muddies Outlook for Economic Growth

Oil has traded in a narrow band around $62 a barrel this month, as investor anticipation that OPEC and its allies may extend supply curbs has given the market some upward momentum. But rising crude stockpiles in the U.S. and the breakdown in trade talks between the world’s two biggest economies has kept any rally in check.

“Given the fact that the macro environment isn’t looking spectacular, oil is doing relatively well," said Bart Melek, head of commodity strategy at Toronto’s TD Securities. “It’s very much marching to its own drumbeat here, with the supply side being supportive in the face of less risk appetite."

West Texas Intermediate crude for June delivery expired Tuesday at $62.99 a barrel on the New York Mercantile Exchange. The July contract traded at $62.99 a barrel at 4:40 p.m., after settling at $63.13.

Brent for July settlement rose 21 cents to $72.18 a barrel on the London-based ICE Futures Europe exchange. The first-month contract is trading at a strong premium to the second, a structure known as backwardation that’s an indicator of tight supply. The global crude benchmark traded at a $9.05 premium to WTI for the same month.

The API also reported gasoline supplies rose 350,000 barrels last week, while stockpiles at the key Cushing, Oklahoma, storage hub increased by 871,000.

Mideast Tension

In the latest flareup in the Middle East in recent days, rebels backed by Iran said they’d attacked an airport in southern Saudi Arabia, further stoking tensions between the two regional powers. Libya’s national oil company said two of its facilities were targeted this week amid continued fighting in that OPEC nation.

Over the weekend, Saudi Energy Minister Khalid Al-Falih urged the producer coalition to “stay the course” on output limits into the second half of 2019. Al-Falih said the kingdom “isn’t fooled” by crude prices and believes the market is still fragile. While suggesting he is open to relaxing the cuts, Russian Energy Minister Alexander Novak said his country would still comply with any agreed output limit until year-end.

Other oil-market news:
  • Gasoline futures rose 0.5% to $2.0193 a gallon.
  • U.S. crude inventories probably fell 1.7 million barrels last week, according to a Bloomberg survey of analysts before government data due Wednesday.
  • Nigeria’s Forcados crude pipeline has been closed as a precaution following a fire near the link, according to the CEO of Shoreline, which uses the export conduit.

--With assistance from James Thornhill and Tsuyoshi Inajima.

To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net;Grant Smith in London at gsmith52@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Carlos Caminada, Jessica Summers

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