Oil Futures Post Weekly Losses

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Intercontinental Exchange Brent settled sharply higher Friday, while the U.S. and international crude benchmarks still fell 1% and 2.5% on the week, respectively, after a new round of punitive tariffs on Chinese imports was announced that renewed fears of global recession. Market uncertainty over the direction of monetary policy also weighed on the market.

Oil futures across the board posted weekly losses, with NYMEX September West Texas Intermediate futures ending Friday's session $1.71 higher at $55.66 barrel (bbl), but fell 1% on the week. ICE October Brent contract advanced $1.39 to settle at $61.89 bbl, but shed a steep 2.5% from last Friday. NYMEX September ULSD futures ended 3.73 cents higher at $1.8902 gallon, down 0.7% on the week, and the September RBOB contract settled up 3.16 cents at $1.7815 gallon after falling a steep 5% on the week.

WTI and Brent futures ended a dynamic week lower amid a set of news that is likely to determine the direction of oil prices in the upcoming months. Following the announcement of new tariffs on Chinese imports and the Federal Reserve's failed attempt to calm markets, investors appear to be reconsidering their positions in growth-sensitive commodity markets. Increasingly, investors grew concerned over the chilling effects a prolonged U.S.-China trade fight would have on global growth and the investment climate.

Oil markets began to trend lower at midweek after Federal Reserve Chairman Jerome Powell described an expected quarter point rate cut as "a mid-cycle adjustment," which many traders interpreted as a pause in rate-cutting policy.

Oil futures were already struggling to recover from the losses incurred late Wednesday by Powell's comments when U.S. President Donald Trump Thursday afternoon announced a 10% hike on $300 billion worth of Chinese imports starting in less than one month. Oil futures nosedived on the reports, falling roughly 7% Thursday ,which was also the biggest one-session drop since February 2015.

Looking ahead to next week, market participants await a response from China, with analysts divided on possible countermeasures that could be employed by Beijing. China's Ministry of Commerce has already issued a statement, describing the latest tariffs as a "violation of a consensus" reached with China's President Xi Jinping at the recent G-20 Summit in Osaka.

"China will have to take necessary steps to defend the core interests of our country. We are not afraid of the fight," read a statement from the ministry.

The White House will now extend tariffs to $550 billion worth of Chinese goods and services, which now account for nearly 100% of Chinese imports into the United States. Unlike the previous rounds of tariffs that have focused mostly on industrial products, the latest wave also include consumer goods such as Apple products and clothing.

Oil futures rallied at midweek following another bullish draw in U.S. commercial crude inventories, the seventh consecutive week of declines, according to U.S. Energy Information Administration. Agency data showed a sizable 8.5 million bbl drop in U.S. stocks last week, pressing inventories to 38-week low. Cumulatively, U.S. crude stockpiles were drawn down 49 million bbl or 10% since the first week of June, which brought inventories in line with the five-year average for this time of the year.

Friday afternoon, Baker Hughes reported another drop in the number of oil rigs in the United States, down six to 770 after declining every week in the third quarter. Domestic rig count plunged to an 18-month low this week, down a steep 89 against a year ago, fueling concerns about lower domestic output in the coming months.

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

(BAS)