Oil Rises on China Data, New Saudi Cuts Plan; Trade War Limits Gains

02/12/2019 18:41:09 Commodities

Investing.com – Trade war or Saudi cuts? Crude traders are having a hard time deciding as fresh tariff threats by the U.S. on China raises questions over oil demand, even as Saudi Arablia's plans to deepen OPEC production cuts bolsters confidence in the market.

Crude futures rose from Friday’s 5% hammering, but traded off the day’s highs after U.S. Commerce Secretary Wilbur Ross’ reminder that higher tariffs on Chinese imports were due on Dec. 15 if there's no trade deal. Oil prices jumped 2% earlier after Iraqi oil minister Thamir al-Ghadhban leaked to the media OPEC’s plans to deepen by more than a third its current output cuts.

By 1:30 PM ET (18:30 GMT), U.S. West Texas Intermediate crude was up 71 cents, or 1.3%, at $55.88 per barrel. It hit a session high of $56.67 earlier.

U.K. Brent, the global benchmark for crude, rose 48 cents, or 0.8%, to $60.97, after an intraday peak at $62.09.

Also aiding the early rally in oil was strong Chinese manufacturing data that suggested the world’s second-largest economy was doing better than thought, despite its 16-month-long trade war with the U.S.

“There are lots of things in the mix now, from the China trade factor to what the Saudis plan to achieve at the OPEC meeting, which are causing as much uncertainty as the early optimism they’ve given to oil prices,” said John Kilduff, founding partner at New York energy hedge fund Again Capital.

Axios, quoting insiders in the Trump administration, reported Sunday that the U.S.-China deal had been “stalled” by the president’s signing of legislation last week supporting Hong Kong pro-democracy activists against Beijing. Trump, commenting on the report, admitted his actions did not help negotiations with China although he insisted that the Chinese “want to make a deal.”

Commerce Secretary Ross later reminded the press that there was no change to the Dec. 15 schedule for additional tariffs on China.

Trump also announced plans Monday to resurrect tariffs on all steel and aluminum imports from Brazil and Argentina, stunning political and industry leaders in those countries and extending the White House’s adversarial trade tactics to new fronts.

That was another element weighing on global markets, analysts said.

Currency wars are “alive and well,” Cowen analyst Chris Krueger wrote in a note to clients, saying Trump's display of “grievance policy-making 101” shows “no one is safe from Tariff Man.”

And while the Saudis want to deepen cuts by OPEC and Russia by another 400,000 barrels per day to reach 1.6 million bpd, non-OPEC supply is expanding at the same time.

Data released earlier showed Brazilian output rose 1.2% in October to an average of 2.964 million bpd, while more backward-looking U.S. government data released on Friday showed U.S. output was still growing in September despite an increasing squeeze from falling prices on marginal production in the shale patch, Reuters reported.

U.S. crude output increased by 66,000 bpd to a record 12.46 million bpd, according to the Energy Information Administration. U.S. production has risen by more than 950,000 bpd since the same point last year, and weekly EIA data indicate it continued to rise in October and November, albeit at a slower pace.