It’s been a frustrating time for oil traders recently. Despite the US crude industry having been in drawdown for seven straight weeks, due to other issues, crude has been unable to rally and has moved steadily lower.
The API reported a further drawdown in its report yesterday. However, crude prices plummeted lower again today as the EIA reported a build.
Crude Inventories Rise
The EIA’s latest report covering the week ending August 2nd showed that US crude stores rose by 2.39 million barrels. This was in stark contrast to the forecasted 2.85 million barrel drawdown the market was looking for.
Furthermore, this decline, which comes on the back of the prior week’s 8.5 million barrel draw, puts an end to the near two-month drawdown in crude stores.
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Trade Tensions Weighing
This data comes at a difficult time for oil bulls. Oil prices have been under heavy pressure over the last week as a fresh escalation in trade tensions between the US and China has rocked the market.
US and Chinese delegates met in Shanghai last week as trade talks between the two countries resumed following their earlier collapse in May. While expectations for the meeting were low, the market was relatively buoyed by the fact that at least the two sides were once again in talks.
However, on the back of the meetings, which seemed to have ended without any progress, Trump then shocked the markets by announcing a fresh set of 10% tariffs on a further $300 billion of Chinese goods due to start from September 1st. The move announced via the President’s Twitter caught the market totally off guard and sent oil and equities prices hurtling lower.
US Labels China A Currency Manipulator
Tensions continued to flare this week. The Chinese yuan was sharply devalued in early trading on Monday. This sent USDCNH soaring over 7 for the first time since the 2008 Global Financial Crisis.
The move was met with swift action by the US. The Treasury Dept released a statement on Tuesdaylabeling China a “currency manipulator” for the first time since 1994. The PBOC subsequently denied the claims, releasing a statement of its own.
Trade Talks Under Threat
These developments are a worrying sign. In fact, they are fuelling concerns that the next round of US/China trade talks, due to be held in September, will be abandoned.
Earlier in the year, the IMF warned about the damaging impact of such aggressive trade policies. However, it seems the US has chosen to ignore these warnings. The markets now wait tentatively to find out what the next steps will be.
Any further retaliation from China could see the US increasing the new 10% tariffs to 25%. Needless to say, this would surely be a devastating blow to the Chinese economy.
The collapse in crude prices over the last week has seen prices moving below some key levels. The 54.90 level which had been supported over July has now given way. Price is currently testing a major 2019 support at the 50.80 level, which is holding for now. This is the last key level ahead of a rundown to the current year to date lows around 44.43, with the 2018 lows of 42.40 sitting just below. For now, focus remains on further downside.