Crude oil prices dropped sharply overnight, despite U.S. crude oil stocks falling, with analysts pointing to trade war concerns and the potential return of Libyan supply.
Nymex WTI crude oil futures for August were up 0.28 percent at US$70.58 a barrel at 9:21 A.M. SGT, but that was down from levels as high as US$74.11 earlier in the week, according to Bloomberg data. ICE Brent crude oil futures for September were up 1.44 percent at US$74.46 a barrel at 9:15 A.M. SGT, but that was down from as high as US$78.86 earlier this week, the data showed.
Societe Generale said in a note on Wednesday that there were two reasons for the sharp decline: The U.S. trade war and Libyan supply returning to the market.
“The U.S.-China trade war ramped up and become more serious. This put downward pressure not only on oil, but on other commodities (including base metals and agricultural commodities), as well as other ‘risk assets,’ including global equities,” the note said. “The risk for oil is that the trade war eventually weighs on the global economy, which could significantly cut demand growth.”
On Tuesday, China warned that it would retaliate if the Trump administration imposes its threatened tariffs on US$200 billion of Chinese products, which were the U.S.’s retaliation for China’s retaliation on the U.S. imposing tariffs on US$34 billion of Chinese goods.
Societe Generale also pointed to reports that Libya’s National Oil Corporation regaining control of four export terminals, with production and exports set to be resumed. The loss of Libyan supply had been a factor pushing up oil prices recently.
“The Libyan disruption had threatened to keep as much as 850,000 barrels a day of light sweet crude offline,” the note said.
That drop in oil prices overnight came despite data showing drawdowns in U.S. stockpiles, which would usually be bullish for oil.
For the week ended July 6, U.S. commercial crude oil inventories, excluding the strategic petroleum reserve, fell by 12.6 million barrels on-week, the U.S. Energy Information Administration said. That level U.S. crude oil inventories around 4 percent below the five-year average for this time of year, it said.
U.S. crude oil imports averaged 7.4 million barrels a day during the week, down by 1.624 million barrels a day from the previous week, the report said. Over the past four weeks, imports averaged around 8.3 million barrels a day, up 5.9 percent on-year, it said.
“Despite the large correction, the underlying bullish oil issues – tightening spare capacity and expected steep losses in Iranian crude – will remain and become more important in the coming months,” Societe Generale said.