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Crude crumbles as trade war imperils economic growth

Bloomberg logo Bloomberg 7/11/2018 Jessica Summers

Video by CNBC

Crude plunged the most in two years as the escalating U.S.-China trade war that threatens economic growth overshadowed the biggest drop in American crude inventories since 2016.

Futures fell as much as 7.4 percent in London on Wednesday. U.S. President Donald Trump is poised to slap tariffs on almost half the products Americans import from China within weeks, and the Asian nation has pledged to retaliate. Meanwhile, surplus crude in U.S. storage tanks shrank by 12.6 million barrels last week while oil imports in the biggest American refining region fell the most since 2012.

“There’s no doubt that that uncertainty continues to weigh, not only on the crude oil markets, but really all markets,” said Brian Kessens, who helps manage $16 billion in energy assets at Tortoise. As for the storage report, “there was a little bit of noise in the data. It just depends when the ships actually hit the docks.”

Shrinking Supplies © Bloomberg Shrinking Supplies

Oil topped $75 a barrel last week amid actual and anticipated supply disruptions from Canada to the Persian Gulf. Saudi Arabia has promised to ramp up output to help cover shortfalls from other major suppliers, though some observers questioned the kingdom’s capacity to do so.

In the U.S. Gulf Coast region that includes refining centers in Texas and Louisiana, oil imports plunged by 1.13 million barrels last week, the steepest decline since September 2012, according to the EIA.

“There’s a sense that Saudi Arabia’s going to increase their exports to the U.S.,” Kessens said. “There’s a lingering sense in the back of people’s minds that we’ll see that a little bit later this summer.”

West Texas Intermediate crude for August delivery slipped $3.80 to $70.31 a barrel at 2:24 p.m. on the New York Mercantile Exchange.

Brent for September settlement fell $5.67 to $73.19 on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $4.59 to WTI for the same month.

Prices were also under pressure as Libya’s eastern ports prepared to resume exports after control of the terminals was returned to the state oil producer.

Oil-market news:

Gasoline futures fell 4.9 percent to $2.0548 a gallon. OPEC expects supplies from its rivals to increase by the most in five years in 2019, with extra oil from the U.S. alone sufficient to meet global demand growth.Compliance and enforcement of new maritime fuel rules is likely to be weak when they kick in in 2020, but refiners and ship owners may be able to comply better than some observers are anticipating, according to RBC Capital Markets’ analysts.

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