Oil recovers on Trump trade tariffs

Saudi Arabia to cut crude oil prices to Asia in September

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SINGAPORE/ TOKYO/ LOONDON: Oil prices rose more than 2 per cent on Friday, recovering somewhat from their biggest falls in years after US President Donald Trump imposed more tariffs on Chinese imports, intensifying the trade war between the world’s two biggest economies and crude consumers. Brent crude futures slumped more than 7 per cent on Thursday, their steepest drop in more than three years. US West Texas Intermediate (WTI) crude futures fell nearly 8 per cent, posting its worst day in more than four years,
The collapse ended a fragile rally built on steady drawdowns in US inventories, even as global demand looked shaky because of the trade dispute. Brent futures rose US$1.51, or 2.5 per cent, to US$62.01 a barrel by 0407 GMT, while WTI futures gained US$1.06, or 2 per cent, to US$55.01 a barrel.
Trump said on Thursday he would impose a 10 per cent tariff on US$300 billion of Chinese imports from Sept. 1 and could raise tariffs further if China’s President Xi Jinping fails to move more quickly to strike a trade deal. The announcement extends Trump’s tariffs to nearly all of China’s imports into the United States and marks an abrupt end to a temporary truce in a trade war that has disrupted global supply chains and roiled financial markets.
The gains may mean investors are reassessing the move by Trump and its effects, Stephen Innes, managing partner at VM Markets told Reuters by email. Just like in shooting wars: the buildup and each stage of campaigns have triggered risk-off events but with diminishing impact over time, he said. Much the same could be true right now about the escalation of tariffs (and) with time, investors have managed to sidestep them and returned to the familiarity of focusing on the data, which in the case of the US economy, still looks good, Innes said.
Meanwhile, top oil exporter Saudi Arabia may cut prices for most of the crude grades it sells to Asia for a second straight month in September after Middle East benchmark prices weakened. The official selling price (OSP) for flagship Arab Light crude could drop by at least 50 cents a barrel, falling below a premium of $2 a barrel for the first time in four months, a Reuters survey of five buyers in Asia showed.
The cuts would track a backwardation between prompt and third month Dubai prices that narrowed by 70 cents a barrel in July versus June. Spot prices are higher than those in future months in a backwardated market. Asia’s incremental demand for September-loading Middle East crude weakened last month with several North Asian refineries scheduled to shut for maintenance during their autumn season.
Strong fuel oil margins, however, are likely to support prices for heavier grades that produce more of the residual fuel, survey respondents said. “Fuel oil cracks rallied the most,” one of the respondents said, adding that this could lead to smaller price adjustments for Arab Medium and Arab Heavy crude versus light grades.
Two of the five respondents expect Arab Heavy crude’s OSP to stay unchanged in September, while most of the respondents said Arab Medium’s September OSP could fall by 20-40 cents a barrel. Saudi Arabia’s crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia.
State oil giant Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices. Saudi Aramco officials as a matter of policy do not comment on the kingdom’s monthly OSPs.

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