Oil fell on Tuesday ahead of a possible increase in OPEC crude supply, and as an escalating trade dispute between the United States and China unleashed sharp selloffs in many global markets.
Expectations are growing that OPEC and partner Russia will gradually increase production in order to make up for falls in Venezuela and potential shortfalls from Iran, which is facing U.S. sanctions related to its nuclear activity.
The United States and China are threatening punitive tariffs on each other’s exports, which could include oil supplies, which sent Chinese stocks to their lowest in almost a year and kept European indices and other industrial commodities such as copper and nickel under pressure.
Brent crude futures eased by 11 cents to $75.23 a barrel by 1410 GMT, while U.S. crude futures fell 60 cents to $65.25 a barrel.
Oil traders are closely watching a threat by China to react to U.S. tariffs by putting a 25 percent duty on U.S. crude oil imports, which have surged since 2017 to a value of almost $1 billion per month.
Global oil demand will be revised downwards and as such oil will not be immune from all of the potential negative impact of international trade wars.
Energy consultancy Wood Mackenzie said the United States “would find it hard to find an alternative market that is as big as China”. It said China takes around 20 percent of all U.S. crude exports.
The Organization of the Petroleum Exporting Countries together with a group of non-OPEC producers including Russia started withholding oil supplies in 2017 to prop up prices.
Following a sharp increase in crude prices from their sub-$30 per barrel lows in 2016, the group will meet on June 22 in Vienna to discuss supply policy.
“We share the general expectation that supply quotas will be increased, but probably more in line with the smaller range being quoted (300-600,000 bpd) given the lack of consensus amongst OPEC members,” said Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald Europe.
“However, we would see the mooted higher end of the forecasts (1.5-1.8 million bpd) as a struggle due to actual physical capacity. In terms of the production increase, we could see this knocking around $5 a barrel off Brent.”
Greg McKenna, chief market strategist at futures brokerage AxiTrader, said there would likely be oil price volatility in the week ahead of the meeting.
“OPEC is fractured or fracturing,” McKenna said, as Iran, Venezuela, and Iraq “seek to veto the production increase”.
“We could be seeing the long-term relationship between the Saudis and Russia pushing OPEC into second place,” he added.
Oil Dented By U.S./China Trade Dispute- OPEC