China’s tariffs on U.S. oil would disrupt US$1b monthly business

Randal Sanchez
June 22, 2018

Following a year and a half of voluntary supply cuts led by the Middle East-dominated Organisation of the Petroleum Exporting Countries (Opec), as well as the non-Opec producer Russian Federation, oil markets have tightened, pushing up prices.

A quota increase of that size shared among all members would not deliver a commensurate boost in production because several countries, including Venezuela where an economic crisis is slowly destroying the oil industry, are unable to raise output.

"Oil is down in a knee-jerk reaction to possibilities of a trade war intensifying between the USA and China, and OPEC's production increasing the demand and supply balance", Takayuki Nogami, Chief Economist at state-backed Japan Oil, Gas & Metals National Corp. said by phone from Tokyo. Energy Ministers from all the OPEC countries including Saudi Arabia, UAE, Iran as well as Russia, China, Oman are expected to participate in the Conference.Pradhan will also visit Germany from 21-22nd June, 2018. But U.S. production has not reached the maximum rates in the past year and in the first half of this year. There is speculation that OPEC might undo a deal struck early a year ago to limit crude production.

The IEA monthly report stated that oil market is finely balanced and vulnerable to disruption and said OPEC swing producers and others might need to raise their production, even as it noted some factors on the demand side are likely to have a moderating influence. The final decision needs to be unanimous for OPEC, however, and many analysts expect the meeting to be a disaster.

OPEC members are set to meet later this week in Vienna to discuss the proposal by Saudi Arabia to end the OPEC/non-OPEC deal to balance the oil market and increase the oil price. Russia, under pressure from domestic oil companies keen to develop new fields, has said the total increase should be up to 1.5 million barrels.

Tokyo ended 0.8 percent down, while Singapore sank more than one percent, Seoul dropped 1.3 percent and Manila tumbled 2.5 percent. Last week, US President Donald Trump, once again, reiterated that oil prices were too high.

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As recently as April, Saudi Energy Minister Khaled al-Faleh had voiced support for the oil cut deal, saying the market had the capacity to absorb higher prices.

For one, the confrontationist attitude shown by the USA government has rattled world currency markets.

The Organization of the Petroleum Exporting Countries and allies, which have curbed supplies since 2017, meet on Friday in Vienna, where they had been expected to come to a decision as to whether to increase global oil production, and by how much. "That would obviously infuriate Trump", he said.

Iraq and Iran have said they would oppose output increases on the grounds that such moves would breach previous agreements to maintain cuts until the year-end.

Tankers waiting to load more than 24 million barrels of crude, nearly as much as state producer PDVSA shipped in April, are sitting off the Opec member's main oil port. We expect prices to be in broad range of $63 and $66 on the WTI, with heightened volatility ahead of the event.

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