Oil prices flat on U.S.-China trade talks uncertainty

February 1, 2019

By Noah Browning

LONDON (Reuters) – Oil prices steadied on Friday as the resolution of trade talks between the United States and China remained in doubt while producer cuts and U.S. sanctions on Venezuelan exports have helped to tighten supply.

International Brent crude oil futures were down 9 cents, or 0.15 percent, at $60.93 per barrel by 1215 GMT. U.S. West Texas Intermediate (WTI) futures were at $53.78, down a cent.

Global markets gained support from comments on Twitter by U.S. President Donald Trump on Thursday, saying he would meet Chinese President Xi Jinping soon to try to resolve a trade standoff, though Trump later warned that he could postpone talks if a comprehensive deal remains elusive.

“Many traders recognize that sense is likely to prevail and a deal will be struck after the summit – although the shape of any deal will continue to drive a jittery market,” Cantor Fitzgerald Europe said in a note.

“This has overshadowed bullish indicators.”

Crude prices were weighed down by a survey on Friday that showed China’s factory activity shrank by the most in almost three years in January, reinforcing fears that a slowdown in the world’s second-largest economy is deepening.

The U.S.-China trade dispute and tightening financial conditions worldwide have hurt manufacturing activity in most economies, including in China, where growth last year was the weakest in nearly 30 years.

With Chinese industry a key consumer of fuels such as diesel, such a slowdown is also likely to hit fuel demand.

Generally, however, analysts believe that the oil market will be more balanced in 2019 after supply cuts from the Organization of the Petroleum Exporting Countries (OPEC). A Reuters poll showed that OPEC pumped 30.98 million barrels per day (bpd) in January, down 890,000 bpd from December.

In Venezuela, meanwhile, U.S. sanctions imposed on state oil company PDVSA this week are keeping tankers stuck at ports as American refineries that rely on Venezuelan feedstock cut back operations.

“The latest U.S. sanctions could directly halt around 500,000 bpd of Venezuelan exports to the U.S.,” Citi said.

Much Venezuelan crude oil is rated as heavy and requires the light petroleum naphtha, much of it supplied from the United States, for dilution before export to refineries.

“An additional 350,000 bpd of Venezuelan oil output is at risk due to the lack of U.S. diluents, a result of the U.S. product exports ban with immediate effect,” Citi added.

(Reporting by Noah Browning in LONDON; additional reporting by Henning Gloystein in SINGAPORE and Colin Packham in SYDNEY; Editing by Dale Hudson and David Goodman)