Oil Slips Below $54 as Trade Fears Outweigh U.S. Demand
Oil slipped below $54/bbl after a short-lived spike as anxieties about global trade and a supply glut overshadowed record gasoline consumption in the U.S.
Futures in New York closed 0.3% lower on Wednesday after earlier rising by almost 1%. The U.S. Energy Information Administration said domestic oil inventories fell by 3.1 MMbbl last week, more than any of the 12 analysts in a Bloomberg survey expected. Demand for gasoline hit a record 9.93 MMbpd and stockpiles of the motor fuel unexpectedly declined.
The report came hours after OPEC and its allies officially proposed an early July date to discuss new supply cuts, ending weeks of speculation about whether the group of major producers could overcome divisions. Saudi Arabia, Iraq and the United Arab Emirates — OPEC’s three biggest members — all want to keep restraining production amid signs of faltering economic growth, according to statements in recent days.
That and the bullish EIA report “all begin to reduce the uncertainties for an oil market that has a whole bunch of them, maybe the biggest of which is where demand is going to go,” said Rob Thummel, managing director at Tortoise, a Kansas-based money manager that oversees $21 billion in assets.
West Texas Intermediate for July delivery fell 14 cents to $53.76/bbl on the New York Mercantile Exchange. The U.S. benchmark price notched its best one-day advance in five months on Tuesday as OPEC and its partners discussed an extension while the U.S. and China said they would revive stalled trade talks.
Brent for August settlement fell 32 cents, or 0.5%, to $61.82/bbl on London’s ICE Futures Europe Exchange, after closing 2% higher on Tuesday.
Oil has slipped about 19% since late April as the prolonged trade spat dented investor confidence. Tensions in the Middle East, including the latest rocket attack near an Exxon Mobil Corp. workers’ camp in southern Iraq, are heightening market uncertainty.
Trade talks between the world’s two biggest economies continue to have a major influence on the market. U.S. President Donald Trump said Tuesday that he had a “very good” phone conversation with his Chinese counterpart Xi Jinping. The two leaders will hold an “extended meeting” at the G-20 summit in Osaka on June 28-29. Trump had repeatedly threatened more tariffs if Xi spurned the opportunity to talk.
After weeks of failed talks, some investors remain skeptical, said Bob Yawger, director of futures at Mizuho Securities USA.
“There’s a lot of folks out there saying, ‘Sure they are going to talk at the G-20. What is going to get done?’” he said. “A certain sober mood has returned to the market.”