Oil set for slump on trade war fears

Brent for September settlement lost 57 cents to $73.88 on ICE Futures Europe exchange

Oil headed for the biggest weekly loss in more than five months as escalating trade tensions between the US and China rattled investors, while Libya’s plans to restore output allayed fears of a supply crunch.

Futures in New York plunged 5 per cent last week as US President Donald Trump doubled down on a trade war with China by threatening tariffs on nearly half of all American imports from the Asian nation. Libya restarted a key field that had been shut since February after regaining control of ports from a political faction. Nonetheless, the International Energy Agency warned on Thursday that spare capacity may be stretched to the limit.

Oil has retreated since hitting a three-year high in New York at the start of the month, as the trade clash between the US and China threatened economic growth. Supply fears abated too, as Libya set about restoring exports and the US signalled it might show some flexibility in re-imposing sanctions on buying Iranian crude.

The structure of Brent contracts even signalled a slight surplus. Still, the IEA warned that the imminent losses in Iran and elsewhere may force Saudi Arabia and Opec’s other Gulf members to pump near the limits of their capacity.

“Even though the outlook is quite bullish when looking ahead, people are worried that it’s not right now,” Richard Mallinson, an analyst at consultants Energy Aspects Ltd in London, said in a Bloomberg Television interview. “We’ve had a big announcement of a recovery in Libyan production and that’s just sent some nervous shudders through the market.”

Sliding prices

West Texas Intermediate crude for August delivery traded at $70.06 (Dh257) a barrel on the New York Mercantile Exchange, down 27 cents, at 11:23am in London. Total volume traded was about 22 per cent below the 100-day average. Futures dropped about 5 per cent last week, most since early February.

Brent for September settlement lost 57 cents to $73.88 on the London-based ICE Futures Europe exchange. The global benchmark traded at a $4.94 premium to WTI for the same month.

Front-month Brent flipped to a discount to October futures last week, a structure known as contango. The pattern normally suggests that immediate supplies are excessive. The two contracts nearest to expiry were near parity yesterday.