By Barani Krishnan
Investing.com – Oil staged its first meaningful rebound in four days on Thursday, climbing from seven-month lows on upbeat Chinese data and an appreciation of the yuan that soothed some nerves over Beijing’s trade war with the Trump administration.
Crude prices were also helped higher by a Bloomberg report quoting an unidentified Saudi official as saying the kingdom would not tolerate the steep price slide of the past week and was open to all options to halt further declines. But Bloomberg also said separately in an analysis that the options available to Riyadh were scarce. “A cooling global economy and the U.S-China trade dispute are putting a brake on fuel demand, so even if global producers decide to cut output further, they may struggle to revive prices,” Bloomberg added.
New York-traded West Texas Intermediate crude settled up $1.45, or 2.8%, at $52.54 per barrel. Despite the rebound, WTI remains down 6% on the week and 11% on the month.
London-traded Brent crude, the benchmark for oil outside of the U.S., rose $1.29, or 2.3%, to $57.53, remaining under the key $60 per barrel.
Both WTI and Brent are still down more than 20% since late April, befitting a bear market.
Thursday’s rebound in oil came after July trade data from China also boosted sentiment, providing some relief to global economic worries. Surprise growth in exports, its biggest since March, and a less-than-expected decline in imports sent an encouraging message to markets. But some economists warned that relief could be temporary if Washington follows through with additional tariffs on Chinese goods in September.
Iris Pang, economic and financial analyst at ING, showed some skepticism over the data, suggesting that “some unusual export activity may have distorted the headline number”.
The yuan was at 7.0452 to the dollar, rebounding from Wednesday’s low of 7.0643.
Elsewhere, Reuters reported that China continued to import oil from Iran in July, the second month since the U.S. tightened sanctions against the Islamic Republic. It cited estimates from tanker-tracking analysts suggesting that imports could have averaged anywhere between 142,000 and 360,000 barrels a day.
If China decides to buy Iranian oil in a big way as part of a move to further retaliate against the Trump administration’s plan for new tariffs on Chinese products from Sept 1, that could be bearish for oil – aside from the political headaches caused to Washington which has vowed to bring Tehran’s crude exports to zero.
Due to U.S. sanctions, Iran now exports only about 100,000 barrels per day of oil compared to its capacity for more than 2 million bpd. With China’s support, the Islamic Republic can do a lot more. A huge injection of Iranian exports to global crude supplies could be very damaging to a market already struggling on the perception that a weakening global economy was crimping oil demand.
But some argue that the decline in crude prices to January lows could help global oil markets as it could crimp U.S. shale output.
“While the oil markets are focused on trade negotiations and demand, the current unprecedented amount of U.S. production is probably the second most important dynamic in the market,” said Ellen Wald, president of Transversal Consulting and an Investing.com contributor.
The Energy Information Administration said Wednesday that U.S. output the prior week was 12.3 million barrels per day, close to record highs.
“If U.S. production drops because of low prices, the market will react,” Wald said.