Oil prices declined on Friday on concerns around the escalating trade war between the US and China, but the impending US sanctions against Iran’s oil exports and the sharp fall in Venezuelan output prevented markets from falling further.
International Brent crude oil futures for November delivery remained unchanged from its last closing price of $77.77 per barrel, while October contract US West Texas Intermediate (WTI) fell 0.7 percent to $69.74 per barrel.
China-US Trade War Deepens Further
US President Donald Trump is believed to be ready to turn the trade war with China a notch higher, as he have reportedly notified aides that he wants to proceed with imposing tariffs on another $200 billion Chinese goods as soon as a public comment period on the plan ends next week.
Analysts has cautioned that the escalating trade disputes between the US and other major economies, particularly China and the European Union, could slow economic growth and, by extension, hurt fuel demand.
Adding more fuel to the fire, Trump threatened on Thursday to pull the US out from World Trade Organization (WTO) if it does not shape up. Such action would have a negative impact on one of the foundations of the global trading system, which the US helped create.
Whether the crude can sustain those prices in a world where Trump doubles down on battle with China and the EU at the same time still remains unclear, according to Chief Market Strategist Greg McKenna.
McKenna added that assuming the trade war is going to escalate again, the questions traders will be wondering about is global growth and demand for crude.
Iran Sanctions, Falling Venezuelan Supply Curbs Crude Losses
Oil prices managed to avoid bigger losses as concerns over looming US sanctions against Iran, which will hit its oil exports from November, and declining supply in Venezuela kept markets relatively tight.
Head of commodity research at a Swiss bank, Nobert Ruecker said the November deadline to meet the US demands for an Iran oil embargo is moving closer, and in anticipation, buyers seemingly started cutting their purchases. Venzuela’s output condition remains equally concerning, Ruecker added.
Investors feared the fall in Venezuelan output would sharply reduce Iran’s crude supply ahead of the imposition on US sanctions on Tehran in November.
Oil markets in August are on track to post a more than 4 percent increase for Brent and a 2 percent rise for WTI as a result of the US sanctions against Iran and the current situation in Venezuela.
Trade figures also showed reduction in oil markets with a recent surplus draining. The amount of unsold of crude in the Atlantic basin has shrunk from about 30 cargoes to just a handful in recent weeks.
Still, several analysts expect the optimism in oil prices will continue. A US bank forecast Brent prices to surpass $80 per barrel before the end of 2018.