Oil Slips Ahead of Tariff Deadline

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled mostly lower on Thursday, with West Texas Intermediate down nearly 1% in market-on-close trading, as hopes for a speedy U.S.-China trade agreement fade.

Oil futures were under pressure Thursday afternoon, fueled by the worries that United States and China would be unable to reach a trade agreement ahead of Friday's deadline. U.S. equities resumed a deep selloff although pared losses ahead of the close, with the Dow Jones Industrial Average down more than 130 points and the S&P 500 Index dropped 0.3% after U.S. President Donald Trump said China "broke the deal" in trade talks.

Midnight Friday, United States is set to increase tariffs on $200 billion in Chinese goods from 10% to 25%, potentially adding tariffs on the remaining $325 billion of imports unless the U.S. and China agree on a comprehensive trade deal.

Higher tariffs would to take effect despite Chinese Vice Premier Liu He's two-day visit to Washington, D.C. through Friday.

Separately, Iran announced on Wednesday it would resume high-level enrichment of uranium, pulling back from some of its commitments under the 2015 nuclear deal. Amid rising tensions, the European Union rejected a 60-day ultimatum provided by Tehran to protect economic ties with Islamic Republic after Trump administration issued of wide range of sanctions on Tehran's metals industry.

The United States this week deployed a carrier strike group and bombers to the Middle East, raising the odds of military confrontation in the heart of the world's oil producing region.

Several wire services report that Saudi Arabia approved requests for oil purchases from countries that stopped buying Iranian crude due to stiffening U.S. sanctions. The world's biggest oil exporter plans to meet all orders from ex-Iran buyers in June, while holding production below the ceiling of 10.311 million barrels per day (bpd) allowed under OPEC+ agreement.

Oil futures downside was capped on Wednesday after government data showed a sizable drop in U.S. commercial crude oil inventories last week. According to weekly EIA statistics, crude output in the United States also declined by 100,000 bpd from a record 12.3 million bpd, while still nearly 14% higher from a year ago. U.S. gasoline stockpiles dipped by a smaller-than-expected 600,000 barrels (bbl) in the profiled week, while implied gasoline demand soured to a better-than eight month high, sending RBOB futures sharply higher on Wednesday.

Nymex WTI June futures settled $0.42 lower at $61.70 bbl, while ICE July Brent crude settled up $0.02 at $70.39 bbl, bouncing back from a one-month spot low below $70 bbl earlier this week. Nymex June RBOB futures edge up fractionally to a $1.9754-gallon settlement. June ULSD futures dipped 1.26 cents to settle at $2.0436 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com