Oil Steadies as U.S. Inventory Drop Offsets Angst Over Trade War

Oil was little changed as signs of tighter supplies in the U.S. offset concerns that the prolonged trade war between America and China will hurt demand.

Futures in New York held below $59 a barrel, heading for a monthly loss. The American Petroleum Institute said that U.S. crude inventories fell by 5.27 million barrels last week, suggesting that more comprehensive government data due Thursday may show a larger decline than the 1.36 million-barrel drop expected by analysts.

Oil is headed for its first monthly loss this year after a shattering of the trade truce between the U.S. and China threw the global growth outlook into question. Volatility has risen as traders are torn between trade-war headlines and fears that tensions between America and Iran may lead to conflict in the oil-rich Persian Gulf.

See also: Dalio Sees ‘Risky Time’ Ahead in U.S.-China Trade Conflict

West Texas Intermediate crude for July delivery was down 3 cents at $58.78 a barrel on the New York Mercantile Exchange as of 8:02 a.m. local time, after slipping 0.6% on Wednesday. The contract is down 8% so far this month.

Brent for July settlement fell 67 cents to $68.78 a barrel on London’s ICE Futures Europe exchange, after closing down 0.9% on Wednesday. The global benchmark crude was trading at a premium of $9.98 a barrel to WTI.

“In the oil market, there is some optimism after the inventory data confirmed that the supply glut isn’t building,” said Naeem Aslam, the London-based chief market analyst at ThinkMarkets. “However, any upside move in the oil price is open to the threat which comes from the ongoing trade war. This situation is going to impact the demand enormously, regardless of the oil-inventory data.”

U.S. crude inventories rose in four of the five weeks through May 17 and are at 476.8 million barrels, the highest since mid-2017, Energy Information Administration data show.

Other oil-market news China may  cut purchases of Iranian oil by 200,000 barrels a day, but it’s unlikely to fully comply with U.S. sanctions, RBC Capital Markets said in a note.South Korea and Japan will probably zero out purchases quickly, jointly removing more than 300,000 barrels a day. The  latest meetings between the Venezuelan government and opposition ended in Oslo with the Norwegian government applauding both sides for agreeing to move forward in the effort to solve the South American nation’s profound crisis.