Traders Looking to Establish New Balance Points after China Tariffs

Traders Looking to Establish New Balance Points after China Tariffs

Traders Looking to Establish New Balance Points after China Tariffs

Brent crude, the benchmark for more than half the world's oil, was up 0.5% at $74.13/bbl in London, while U.S. WTI was 0.3% higher at $69.23 in NY.

"There is room for [prices in] the crude market to soften a bit more", says John Woods of JJ Woods Associates, adding that inventories could rise further as refineries head toward maintenance season after the summer driving season.

The sanctions are already brewing a potential confrontation between the U.S. and Iran as Tehran has threatened to block the Strait of Hormuz, an important sea route through which tankers ship more than 30 per cent of crude oil to the worldwide market, in retaliation to the sanctions.

"However, the central geopolitical risk stems from the Iranian threat of closure of the Strait of Hormuz - a critical conduit for global oil supplies with 17 per cent of global crude oil and products travelling through this narrow channel on a daily basis", said Khoman.

The White House said in a statement Monday that the United States will reactivate a slew of sanctions on Iran's financial and industrial sectors beginning on Tuesday. China's Unipec has suspended USA oil imports due to a growing trade spat between Washington and Beijing.

Iran's oil exports have now fallen for three successive months as the country braces itself for the re-imposition of sanctions by the US.

While U.S. crude exports to China appear to have held up in August, with about 342,000 bpd expected to arrive, they seem set for a slump in September.

The U.S. has restored sanctions against Iran as as President Donald Trump reaffirmed plans to impose more penalties on the country's oil sales in November.

That's all occurring as global oil investors are grappling with doubts over how demand will be affected by flaring trade tensions between the USA and China, the prospect of lower exports from Iran due to American sanctions, uncertainty about Saudi Arabia's output strategy and a fall in stockpiles at the storage hub in Cushing, Oklahoma.

Both benchmarks tumbled more than 3 percent on Wednesday after US data showed a smaller-than-expected weekly draw in crude inventories and a surprise build of 2.9 million barrels in gasoline supplies.

Oil price rose today amid reports that the USA restored sanctions against Iran, the world's fifth-largest oil producer.

"Oil had been largely immune from the escalating trade dispute, however the recent application of tariffs by China on USA petroleum products does represent a step change for the energy market", said Daniel Hynes, a Sydney-based analyst at Australia & New Zealand Banking Group Ltd.

Furthermore, oil prices were dragged down by the increasing output of the Organization of the Petroleum Exporting Countries (OPEC) and Russian Federation. Meanwhile, the U.S. said Tuesday it will begin imposing tariffs on an additional $16 billion in Chinese imports in two weeks.

Goldman Sachs insists we are heading for a "very, very tight oil market". On the other hand, a reduction in supply as a result of US sanctions on Iran (which will reduce supply), is providing support on moves lower. Gasoline stocks rose by 2.9 million barrels, compared with an estimate for a drop of 1.7 million-barrel drop.

Meanwhile, stockpiles of gasoline and distillates, which include diesel and heating oil, rose more than expected.

Iranian oil production fell to 3.72 million b/d in July - the lowest since January 2017, according to Platts estimates.

The crude oil prices' down trend through July 2018 was attributed to several factors that negatively affected the prices, including the production hikes in Saudi Arabia and Russian after the meeting of the Organisation of the Petroleum Exporting Countries (Opec) with non-member producers in June, which resulted in a decision to gradually ease the group's production in order to balance the supply and demand of global crude oil.

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