Oil holds near $63 as crude stocks drop, trade tensions abate

Oil held near $63 a barrel after U.S. crude stockpiles declined and trade tensions between the U.S. and China showed tentative signs of easing. Futures were little changed in New York. U.S. oil inventories shrank the most since January, according to government data Wednesday, in contrast to a forecast expansion. Risk assets, including equities, rallied as Chinese and American officials indicated they’re willing to negotiate on escalating frictions, helping to calm fears that a trade war could derail the strongest global growth in years.

The decline in U.S. stockpiles has boosted optimism that surging shale output may not thwart OPEC’s efforts to drain a glut. While prices have been buoyed by America’s potential withdrawal from a nuclear deal with OPEC producer Iran, a gathering trade conflict between the U.S. and China — the world’s two largest economies — has kept a lid on gains. Prices are being affected by “a bullish oil-inventory report” from the U.S., said Michael Poulsen, an analyst at Global Risk Management Ltd.

West Texas Intermediate for May delivery fell 4 cents to $63.33 a barrel on the New York Mercantile Exchange as of 10:36 a.m. in London, after dropping 14 cents on Wednesday. Total volume traded Thursday was about 23 percent below the 100-day average. Brent for June settlement declined 2 cents to $68 a barrel on the London-based ICE Futures Europe exchange, after slipping 10 cents on Wednesday. The global benchmark crude traded at a $4.70 premium to June WTI.

U.S. storage dropped by 4.62 million barrels to 425.3 million barrels last week, while outbound shipments of crude expanded to a record, according to an Energy Information Administration report Wednesday. The EIA data also showed that American oil production rose to an unprecedented 10.5 million barrels a day, topping the 10 million-barrel level for a ninth week.

Global markets from equities to oil recovered after investor optimism grew that the U.S. and China will step back from the brink of a trade war. The Asian nation said Wednesday it would levy an additional 25 percent tariff on about $50 billion of U.S. imports, following which the White House National Economic Council Director Larry Kudlow spent much of the day trying to calm markets.

The two countries still have time to work out their differences, he said, while China’s ambassador to the U.S., Cui Tiankai, also said his first choice would be to consult the U.S. over trade.

Oil-market news:

  • Proposed tariffs on China’s imports of American propane probably won’t hurt U.S. companies as much as intended, since Chinese buyers signed long-term contracts that include high fees for breaking the agreements.
  • Kazakhstan’s cash-strapped state oil company generated another $1 billion in prepayments by extending a crude-supply contract with Vitol Group.
  • Gasoline futures fell 0.2 percent to $1.9726 a gallon, after adding 0.1 percent Wednesday.

Sources and photo-credits: Bloomberg with assistance by Tsuyoshi Inajima