Oil Futures Slide on Global Trade Risks

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled sharply lower Friday. West Texas Intermediate posted an 8.7% weekly drop amid fresh concerns over global economic growth and Trump administration trade policies.

NYMEX July WTI futures fell $3.09 or 5.8% to settle at $53.50 bbl, the lowest price settlement since Feb. 12. ICE July Brent expired $2.38 lower at $64.49 bbl, while next month August contract settled at a $2.50 bbl discount to the now expired contract. NYMEX June RBOB futures expired 7.66cts lower at $1.8020 gallon, holding a 3.06cts premium to the July contract. NYMEX June ULSD futures expired 7.32cts down at $1.8418, with July delivery holding a 14 points premium to the expiring contract.

Oil futures tanked on Friday after the Trump administration upped the ante in the trade war with neighboring Mexico, threatening to raise tariffs to 5% on all goods and services from the country starting June 10. The White House warned the tariffs could increase to 25% by Oct. 1 if Mexico does not comply with U.S. demands to halt illegal immigration at the U.S. southern border. Mexico is one of the largest U.S. trading partners with crude oil and oil products accounting for nearly 12% of all trade between the two countries.

According to Energy Information Administration, Mexico exported 665,000 bpd of crude oil to the United States in 2018 behind only Canada and Saudi Arabia. The United States sold more petroleum products to Mexico than any other country, while U.S. exports of petroleum products to Mexico made up 22% of all energy products originated from the United States last year. Mexico has not released a statement yet on whether the country would retaliate.

China raised the stakes this week in an escalating tariff fight with the United States, announcing it would stop all purchases of U.S. soybeans and threatened to cut off exports of rare-earth materials to the United States. The former Chinese Central Bank chief said on Friday the deadlock over trade between the United States and China is unlikely to end during the next month's G-20 summit in Japan, as it "would be very difficult for the U.S. side to form a powerful and systematic correction of the current policy course."

Domestically, the number of active oil rigs reversed higher from a 14-month low this week according to Baker Hughes data released Friday afternoon. The slight uptick in oil rigs correlates with a higher rate of U.S. production, which moved up 100,000 bpd in the week ended May 24 to a record 12.3 million bpd.

Oil futures were hit midweek by another bearish weekly supply report from EIA, detailing a smaller-than-expected drawdown in domestic inventories, while supplies remain 5% above the five-year average for this time of the year.

The OPEC+ agreement to withhold 1.2 million bpd from the global market is set to expire at the end of June with the participants expected to debate the effectiveness of the production cuts and to consider an extension of the agreement June 25-26.

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