Global Energy Report: China-US Trade Spat Causes Crude to Weaken In Asia, OPEC Eyed

Crude oil prices fell in Asia on Monday with the addition of tariffs on oil and gas exports from the US to China part of a growing rift on trade that unnerved commodity markets as investors looked ahead to an OPEC-led meeting in Vienna where output could be increased.

ICE Brent crude futures, the benchmark for oil prices outside the US, fell 1.12% to $72.62 a barrel. US West Texas Intermediate crude futures dropped 2.00% to $63.55 a barrel.

China struck back against US trade tariffs, announcing that on July 6 it will levy duties on $34 billion of US products, covering 545 categories with tariffs of 25%. At a date to be announced later, China will also implement tariffs on an additional $16 billion of US goods, including chemicals, coal, crude oil and medical devices.

Elsewhere, OPEC and non-OPEC countries in a global oil output deal will consider increasing output by 1.5 million barrels per day (bpd) in the third quarter only, Russian Energy Minister Alexander Novak said on Saturday, the TASS news agency reported. Russia and Saudi Arabia have agreed to extend cooperation indefinitely and will discuss the agreement in Vienna at a meeting scheduled to start on June 22, Novak said. OPEC and allies had previously agreed to trim 1.8 million bpd from global markets through the end of 2018, but a closer supply and demand balance is causing a rethink.

“The meeting is the cartel’s most anticipated one since November 2016 when it reached a deal with selective non-OPEC producers to collectively cut production by ~1.8 MMBbld through YE18,” Credit Suisse said in a note to clients. “Unlike most OPEC meetings, there is little consensus among participants for the appropriate course of action with Saudi (and non-OPEC oil ally Russia) advocating higher production and several OPEC members adamant about no change to quotas (e.g. Iran, Iraq, and Venezuela),” Credit Suisse said.

“Importantly, OPEC needs a consensus of all members to officially change its output policy, leading some to believe it may end in a ‘broken meeting’ (like June 2011).”

Libya’s National Oil Corporation (NOC) at the weekend warned of further declines in output. The Ras Lanuf port’s storage tank No. 2 was hit by a shell and set ablaze, reports said on Sunday, with the tank holding 200,000 barrels of crude at the time. Another Ras Lanuf tank, No. 12, had already been set alight and damaged on Thursday.

The NOC has shut and evacuated the terminals, declaring force majeure on exports with the loss at 240,000 bpd and expected to rise to 400,000 bpd if the ports stayed shut.

Last week, bullish bets by hedge funds and money managers on US crude and futures options in London and New York fell by by 2,117 contracts to 350,022 in the week to June 12, the US Commodity Futures Trading commission said on Friday.

In addition, US oil drillers added one rig last week to take the total to 863, the highest level since March 2015, Baker Hughes said Friday. Simmons & Co has forecast the average total oil and natural gas rig count would rise to 1,038 in 2018, 1,097 in 2019 and 1,232 in 2020, up from a projected 1,025 in 2018 and 1,125 in 2019.

So far this year, the total number of oil and gas rigs active in the United States has averaged 999, up sharply from 2017’s average of 876. That keeps the total count for 2018 on track to be the highest since 2014, which averaged 1,862 rigs.

US Natural gas futures rose 0.07% to $3.034 per million British thermal units (mmBtu).

A magnitude 6.1 earthquake hit western Japan on Monday, the Japan Meteorological Agency said. Initial reports said several people died and dozens were injured with temporary disruption to natural gas deliveries and oil refining operations regionally.