Prices of oil slide more than 2%

London — Oil prices fell more than 2% on Wednesday as China signalled it would use the rare-earths card in its trade war with the US, stoking concerns that an ongoing standoff could hurt crude demand.

Supply constraints linked to Opec output cuts and political tension in the Middle East offered some support, however.

Front-month Brent crude futures, the international benchmark for oil prices, were at $68.55 a barrel at 9.33am GMT, down $1.56 from last session’s close, having hit a session low of $68.44.

US West Texas Intermediate crude futures were at $57.71 per barrel, down $1.43, after hitting a low of $57.66.

Both contracts are set for their first monthly decline in five.

In a sign of escalating tensions between the world’s two biggest economies, China signalled it was ready to use its dominant position in rare earths to strike back in a trade war with the US, Chinese newspapers warned on Wednesday.

While China has so far not explicitly said it would restrict rare earths sales to the US, Chinese media has strongly implied this will happen.

“China is the world’s biggest producer of these highly-prized raw materials and is poised to use them as leverage in its trade spat with Washington,” London brokerage PVM said.

Despite these concerns dragging on oil markets, crude prices remain relatively well-supported.

“Supply risks remain at elevated levels with continued geopolitical uncertainty in the Middle East, as well as Venezuela’s well-known struggles,” James Mick, MD and energy portfolio manager with US investment firm Tortoise, said in an investor podcast.

July Brent crude futures were trading at about $1.50 a barrel above the August contract, a structure known as backwardation, which points to a tight market.

“The last time it was any higher in this segment was in September 2013,” Commerzbank said. “That market participants are prepared to pay such a premium for oil that can be delivered at short notice points to tight oil supply.” Adding to this are ongoing supply cuts led by Opec implemented at the start of 2019 to prop up the market.

Opec and some allies including Russia are due to meet in late June or early July to discuss output policy going forward.

Russian first deputy prime minister Anton Siluanov said on Wednesday that the country would consider a possible extension of its oil output reduction agreement. 

Reuters

Source: businesslive.co.za