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Oil falls as Saudi, Russian output rises, Dollar up

Oil falls as Saudi, Russian output rises, Dollar up

LONDON, July 2: Oil prices fell on Monday as supplies from Saudi Arabia and Russia rose while economic growth stumbled in Asia amid an escalating trade dispute with the United States, reports Reuters. Benchmark Brent crude oil LCOc1 fell $1.24 a barrel to a low of $77.99 before recovering to around $78.70, down 53 cents, by 1110 GMT. U.S. light crude CLc1 was down 5 cents at $74.10. Oil prices rose strongly last week, with the U.S. crude contract hitting its highest in 3-1/2 years at $74.46. But a flurry of U.S. announcements over the weekend unsettled oil markets. President Donald Trump tweeted on Saturday that Saudi Arabia’s King Salman bin Abdulaziz Al Saud had agreed to pump more oil, “maybe up to 2,000,000 barrels”. The White House later walked back on the comments. Saudi Arabia’s output is up by 700,000 barrels per day (bpd) from May, a Reuters survey showed, and close to its 10.72 million bpd record from November 2016. Russian output rose to 11.06 million bpd in June from 10.97 million bpd in May, the Energy Ministry said on Monday. U.S. production C-OUT-T-EIA has soared 30 percent in the past two years, to 10.9 million bpd, meaning the world’s three biggest oil producers now churn out almost 11 million bpd each, meeting a third of global oil demand. Also weighing on oil demand are trade disputes between the United States and other major economies including China, the European Union, India and Canada. Asia’s main economic hubs of China, Japan and South Korea reported a slowdown in export orders in June amid escalating trade disputes with the United States. “Recurring salvos in the trade war and falling asset prices raise the question of how much tariffs could damage the global economy,” U.S. bank JPMorgan said. The bank said a “medium-intensity (trade) conflict would likely reduce global economic growth by at least 0.5 percent, “before accounting for tighter financial conditions and sentiment shocks”. Despite the relief from Saudi Arabia and Russia, oil markets remain tense because of unplanned outages from Canada to Venezuela and Libya. Looming U.S. sanctions against Iran further contribute to expected tightness. Trump threatened in an interview that aired on Sunday to put sanctions on European companies that do business with Iran. “The Trump administration’s plan for Iran sanctions is now abundantly clear. They seek to push Iranian exports of crude, condensate, and oil products to zero,” energy consultancy FGE said in a note. Another report adds; the dollar edged higher on Monday, closing in on last week’s one-year high, as investors ramped up bets that escalating trade tensions between the U.S. and its trade partners will hurt the world’s biggest economy the least for now. Tension is growing ahead of a July 6 deadline when Washington is due to impose $34 billion of tariffs on Chinese exports, with two surveys of Chinese manufacturing out in the last few days showed a softening in activity, partly due to softness in exports. “The dollar has begun to benefit from increased trade tensions as the relative economic impact of tariff measures comes into focus, with the U.S. economy better insulated than the rest of the G10,” BNP Paribas strategists said. Rising trade tensions have hit stock markets from Germany to South Korea and prompted investors to hedge their exposure to relatively high-yielding currencies such as the Australian dollar and the Chinese currency. Taking note of the rising dollar, BNP Paribas trimmed its end-year forecasts for the euro and sterling for end 2018. Latest positioning data remains broadly supportive for the dollar and is an extension of themes seen in currency markets in recent days. Dollar longs edged higher for a second consecutive week, euro longs got trimmed again with net outstanding long positions at their lowest in nearly two months while the Swiss franc enjoyed some safe-haven support. A rising dollar also translates into tightening financial conditions for broader financial markets given the U.S. currency’s dominance in global financing and trading markets. The euro also received a setback after German Chancellor Angela Merkel was dealt a fresh blow when her interior minister offered to quit in an escalating row over migration policy. “More than the German political developments, the concerns over a rising trade conflict is more worrying for global markets at this stage and that is going to keep risk appetite muted,” Commerzbank FX analyst Esther Maria Reichelt said. On Monday, the single currency fell 0.5 percent at $1.1633 in early London trading. It racked up its third consecutive monthly loss against the dollar in June. While economists expect the direct economic damage from those tariffs to be relatively contained, at least for now, many see the reversal of globalisation having negative repercussions for years to come, lowering companies’ longer-term growth expectations. Chinese stock markets fell 2.5 percent while its currency sank to more than seven-month lows as investor concerns grew about a widening trade conflict. The dollar extended its gains against the yen to hit a new six-week high of 111.06 yen. The Japanese currency was unmoved by the Bank of Japan’s tankan business sentiment survey, which showed a slight dip in big Japanese manufacturers’ sentiment. The Australian dollar weakened 0.5 percent against the greenback while the Canadian dollar slipped 0.3 percent.

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