Oil pared losses after hitting the lowest level since March as a key U.S. pipeline prepared to restart and an industry report was said to show a drop in American crude supplies.
Futures closed the trading session down 0.6% after slumping as much as 3.8% in New York. MPLX LP was preparing to restart its Ozark pipeline that carries crude from the Cushing, Oklahoma, storage hub to Illinois, according to traders who cited a shipper bulletin. Prices further backed off lows as the industry-funded American Petroleum Institute was said to report U.S. crude stockpiles dropped 5.27 million barrels last week.
The earlier decline, which put WTI in line for its worst month since December, followed a selloff in equities and suggestions in Chinese media that the nation could restrict rare-earth exports critical to the U.S. defense, energy and electronics industries. The OPEC+ producer coalition, meanwhile, is split on when to hold a critical meeting to discuss output cuts, according to delegates familiar with the discussions.
The deepening trade dispute is dominating investor sentiment even as the physical crude market remains tight amid multiple supply risks, from Iran to Venezuela to Libya. Output cuts by the Organization of Petroleum Exporting Countries and its allies expire at the end of June, but the group’s “wishy-washy” stance on simply setting a new date is adding to uncertainty, said Michael Loewen, a commodities strategist at Scotiabank in Toronto.
“The macroeconomic overlay is affecting everything,” he said. “If China starts restricting that flow of rare earths, that will materially restrict economic growth.”
West Texas Intermediate crude for July delivery was at $59.06 a barrel at 4:58 p.m. after closing at $58.81 a barrel on the New York Mercantile Exchange. It earlier slid to $56.88, the lowest since March 12.
Brent for July settlement reached $69.70 a barrel after earlier settling at $69.45 on London’s ICE Europe Futures exchange. The global benchmark crude traded at a $10.64-a-barrel premium to WTI after touching $11.59, the widest gap in four years.
Even as prices are sinking, spreads between monthly Brent contracts suggest that physical markets are growing increasingly tight. The premium on prompt Brent futures settled at $1.44 a barrel on Tuesday, the strongest since September 2013 — a condition known as backwardation that signals short-term demand is outpacing supplies.
The U.S. shouldn’t underestimate China’s ability to fight the trade war, the People’s Daily, a flagship newspaper of the ruling Communist Party, said in an editorial Wednesday. That publication, along with Global Times and Shanghai Securities News, all indicated that Beijing is gearing up to use its dominance of rare earths in its trade battle with Washington.
Other Oil News: Gasoline futures slipped 0.6% to $1.9452 a gallon. U.S. crude inventories likely fell 1.4 million barrels last week, according to a Bloomberg survey of analysts, following two weeks of gains. The official Energy Information Administration data is due Thursday. Exxon Mobil Corp. beat back a proposal to split the chairman and chief executive positions, a move that would have dismantled a structure that dates back decades. Canadian Natural Resources Ltd. is extending its dominance of the country’s oil and gas industry with a C$3.8 billion ($2.8 billion) deal for Devon Energy Corp.’s business in the country.