Oil prices moved higher on Monday as traders assessed escalating trade tensions between the U.S. and China, and braced for a potential output boost by major crude producers later this week.
July West Texas Intermediate crude CLN8, +0.11% rose 16 cents, or 0.3%, to $65.22 a barrel on the New York Mercantile Exchange, after losing 1% last week. The U.S. benchmarked seesawed between a low of $63.59 and high of $65.49. Global benchmark Brent crude for August delivery LCOQ8, +1.50% added 96 cents, or 1.3%, to $74.40 a barrel on ICE Futures Europe, following a roughly 4% loss last week.
Investors were fixated on how trade-related disagreements between the U.S. and China are escalating. President Donald Trump on Friday announced tariffs on $50 billion worth of Chinese imports, and Beijing retaliated by targeting high-value American exports.
The Chinese government announced plans to place tariffs on U.S. oil imports as well as other energy products, so trade war fears are “scaring oil traders into believing that we could see this trade spat lower economic growth and reduce oil demand,” said Phil Flynn, senior market analyst at Price Futures Group, in a daily email.
Analysts at Commerzbank said in a note Monday that “the possible punitive tariff of 25% means that U.S. crude oil would no longer be a low-cost alternative despite the current price discount,” adding that they “therefore expect the high price gap between Brent and WTI to remain in place during the summer months.”
Flynn, however, said that “U.S. crude exports to China were roughly 380,000 barrels per day in March, a large amount but not enough to shatter the global oil supply and demand balance.”
He believes the White House’s announcement of $50 billion in planned tariffs against Chinese goods and an equal retaliation by the Chinese “will not really slow the global economy by that much.” The trade tariffs also won’t start until early July, he said, so there’s “plenty of time to cut another deal.”
On Friday, both WTI and Brent notched big drops for the session and the week, weighed by expectations that the Organization of the Petroleum Exporting Countries and its allies will agree to increase production at a meeting this Friday.
Read: OPEC risks destroying its oil market success
In a Monday note, Société Générale’s Michael Wittner and Mark Kogel said they expect Saudi Arabia, the U.A.E., and Kuwait will decide to increase production by a combined 500,000 barrels a day beginning in July.
“The focus will be on replacing Venezuelan losses, not on offsetting the impact of Iran sanctions,” they said. “We also expect Russia to increase gradually, by 200 kb/d within two to three months.”
“The fact that these are the only four countries with spare capacity may well result in a difficult meeting,” Wittner and Kogel said. “The result will be broadly stable total OPEC crude, rather than continued declines.”
There are reports, however, that Iraq, Iran and Venezuela are “looking to veto a production increase” and that is making the market realize that the recent sell off in oil prices was overdone, Flynn told MarketWatch.
Elsewhere in energy trading, July gasoline RBN8, +1.01% rose by 0.8% to $2.039 a gallon and July heating oil HON8, +1.53% climbed by 1.1% to $2.11 a gallon.
July natural gas NGN18, -2.18% traded at $2.986 per million British thermal units, down 1.2%, after settling Friday above $3 for the first time since late January.