Published: Mon, July 09, 2018
Money | By Ralph Mccoy

Oil steadies as drilling increases in tight market

Oil steadies as drilling increases in tight market

London-based Brent Oil Futures for delivery in September were also higher, up 0.47 percent, traded at $77.48 per barrel.

US tariffs on Chinese goods came into effect Friday; China retaliates, duty on USA crude possible. -China trade dispute, most traders agree that yesterday's government report is exerting the most pressure on the market.

On Thursday, the U.S. Energy Administration (EIA) announced that U.S. crude inventories had risen 1.2 million barrels in the week to June 29, to 417.88 million barrels.

As part of a wave of retaliation for Friday's US tariffs, China has threatened a 25 percent duty on imports of USA crude.

However, crude oil is listed as a USA product that will receive an import tariff at an unspecified later date.

The stoppage at the 360,000 barrels per day (bpd) Syncrude facility in Canada has contributed to a sharp reduction in the discount for United States crude versus Brent crude over the past month. This means China would begin buying more oil from the Middle East or West Africa.

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But as is the case with any geopolitical conflict, the smart money always identifies opportunities, and Lee Dal-seok, senior researcher at the Korea Energy Economic Institute pointed out that "If China retaliates with tariffs on US crude, that could improve South Korea's terms of buying USA crude.because the USA would need a market to sell to".

Trump's trade war with China - which like the Iran conflict was predicated on the not entirely inaccurate argument that the USA was getting the short end of the stick with regards to business relations - is another example in which pundits are predicting rough road ahead, despite compelling arguments from minority voices that the dispute will eventually resolve in the Americans' favour.

In other news, potential supply shortages continue to be the hot topic.

Oil prices steadied on Monday as an increase in USA drilling, likely to lead to higher shale production, balanced evidence of tightening supply. By some estimates, about 1.7 to 2 million bpd of crude and condensate would be cut out of markets once the sanctions are implemented. Venezuela is expected to lose another 400,000 bpd by year-end with production going to below 1 million bpd.

The United States says it wants to reduce oil exports from Iran, the world's fifth biggest oil producer, to zero by November, in a move that will oblige other big producers such as Saudi Arabia to pump more. At this time, there may not be enough spare capacity to cover the losses from Venezuela and Libya.

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