Oil slips as supply worries become shortage ones, and on the US-China trade war

New York — US crude oil futures fell on Tuesday as worries over supply disruptions eased and the focus moved to increasing domestic production and potential damage to global growth from the US-China trade dispute.

US West Texas Intermediate crude (WTI) was 81c lower at $67.26 a barrel by 2.53pm GMT. It lost 4.2% on Monday. Brent futures rose 9c to $71.93 a barrel, after earlier trading as low as $71.35 a barrel, its lowest since April 17. Brent fell 4.6% on Monday.

"Fears of shortages, which pushed prices as high as $80 a barrel in early summer, are receding and concerns about looming surpluses growing," Carsten Menke, commodity research analyst at Swiss private bank Julius Bär, said.

The market is waiting for clear signals on supply, including whether the US will release crude from its Strategic Petroleum Reserve and whether Libya’s oil production will rebound following military clashes in late June and early July, said Tariq Zahir, managing member at Tyche Capital in New York. "You really have to see how much Saudi is going to produce, along with Russia."

Russian crude production could also ramp up, restoring 300,000 barrels per day (bpd) that were cut in an agreement with oil cartel Opec, he said. "I think we’re going to get to a more balanced market as we get to the fourth and first quarter of next year."

Oil prices have fallen by almost 10% over the past week as crude export terminals in Libya have re-opened and exports from other Opec countries and Russia have increased.

Production from seven major US shale oil formations is expected to rise by 143,000 bpd to a record 7.47-million bpd in August, the US Energy Information Administration (EIA) said on Monday. Output is expected to rise in all seven formations.

Intercontinental Exchange announced its plans to launch a contract for WTI crude deliverable in Houston, compared with the current WTI contract that has its delivery point at the Cushing, Oklahoma storage hub. The new contract will facilitate crude purchases for foreign buyers who export the crude. The contract underscores the rising volumes of crude from the Permian that are increasingly available for export.

Also undermining prices is concern that the growing trade war between the US and other major trading blocs, particularly China, could dampen economic activity and thus squeeze oil demand.

This week, China reported slightly slower growth for the second quarter and the weakest expansion in factory activity in June in two years, suggesting a further softening in business conditions in the coming months as trade pressures build.

Beijing’s state planning agency said it was still confident of hitting its economic growth target of about 6.5% this year, despite views that it faces a bumpy second half as the trade row with Washington intensifies.

Goldman Sachs said it expects price volatility to remain elevated, keeping Brent in a $70 to $80 a barrel range in the short term. "Supply shifts, alongside the ongoing surge in Saudi production, create the risk that the oil market moves into surplus" in the third quarter, the report said.

Reuters