Oil mixed as Iran sanctions seen tightening market, trade spat weighs on trade

FILE PHOTO A worker inspects a pump jack at an oil field in Tacheng, Xinjiang Uighur Autonomous Region, China June 27, 2018. (Reuters)
Updated 10 August 2018
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Oil mixed as Iran sanctions seen tightening market, trade spat weighs on trade

  • Front-month Brent crude oil futures were at $72.12 per barrel at 0246 GMT, up 5 cents from their last close
  • Despite the possibility of a slowdown in economic growth due to escalating trade tensions, oil markets are for now relatively tight

SINGAPORE: Oil markets on Friday were torn between concerns that the US-China trade dispute would stall economic growth, while Washington’s sanctions against Iran were expected to tighten supplies.
Front-month Brent crude oil futures were at $72.12 per barrel at 0246 GMT, up 5 cents from their last close.
US West Texas Intermediate (WTI) crude futures were flat at $66.81 a barrel.
Despite the possibility of a slowdown in economic growth due to escalating trade tensions, oil markets are for now relatively tight, analysts said, mostly because of sanctions on Iranian oil exports the United States plan to implement in November.
Although many other powers, including the European Union and major Asian buyers such as China and India oppose sanctions, many are expected to bow to American pressure.
“Iranian exports are set for a ‘cliff edge exit’ from the market in Q4 2018,” BMI Research said in a note.
“We do not believe that sanctions have been fully priced into Brent, leaving room for a significant run up in prices toward the end of the year,” it added.
Analysts expect the drop-off in Iranian crude exports to range between 500,000 barrels per day and 1.3 million bpd.
The reduction will largely depend on whether major buyers of Iranian oil in Asia, including India, South Korea and Japan, receive sanctions waivers that would still allow some imports.
It is also not clear whether China, the biggest buyer of Iranian crude, will bow to Washington’s pressure.

Trade dispute

Friday’s markets acted cautiously amid heightened trade tensions between Washington and Beijing.
“The market seems to be focused on fears of reduced demand from China, partially due to the effects of the trade wars between China and the United States,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.
In the latest round, China said it would impose additional tariffs of 25 percent on $16 billion worth of US imports, which would include refined products, autos and medical equipment.
Crucially to oil markets, however, crude has been dropped off the list.
Kenneth Medlock of the Baker Institute for Public Policy said Beijing’s decision reflected China’s reliance on imports.
“The issue for the Chinese is that any tariff on US exports (including) oil will likely hurt their economy disproportionately because they have to import,” he said, noting that “US exports will find a home regardless of how the global supply deck is reshuffled.”
US crude exports to China, seen as a tool to reduce America’s trade deficit with Asia’s biggest economy, have soared in the last two years and by the middle of this year were worth around $1 billion per month.


World’s biggest sovereign fund worried about trade wars

Updated 21 August 2018
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World’s biggest sovereign fund worried about trade wars

  • The fund posted a positive return of 1.8 percent, or 167 billion kroner ($19.8 billion), in the second quarter
  • Markets are worried about a trade dispute between the United States and China

OSLO: The managers of Norway’s sovereign wealth fund, the world’s biggest, expressed concern Tuesday about global trade tensions, which could heavily impact its value.
The fund posted a positive return of 1.8 percent, or 167 billion kroner ($19.8 billion), in the second quarter, helping erase a loss of 171 billion kroner in January-March that was attributed to a volatile stock market.
The Government Pension Fund Global, which saw its total value swell to 8.33 trillion kroner by the end of June, manages the country’s oil revenues in order to finance Norway’s generous welfare state when its oil and gas wells run dry.
But Norway’s central bank, which runs the fund, said geopolitical and trade tensions presented a risk.
“It’s fair to say that increased trade barriers or even trade wars will not be beneficial for the fund as a long-term global investor,” Trond Grande, the deputy chief of Norges Bank Investment Management, told reporters.
Markets are worried about a trade dispute between the United States and China. Accusing Beijing of unfair competition, the US administration is considering slapping a new round of levies worth $200 billion on Chinese goods.
Talks between the two slated for Wednesday and Thursday aimed at resolving the dispute have however eased concerns somewhat.
Following US-Turkey tensions that sent the Turkish lira and the Istanbul stock market tumbling, the Norwegian fund said its assets there were worth less than the 23 billion kroner they were at the beginning of the year.
“We’ve seen the market rise for a long time, that there are different political and geopolitical events in the world that can affect the market, and we have to be prepared for the fact that (the value of) the fund can go down a lot,” Grande concluded.
The fund’s strong second quarter was attributed primarily to its share portfolio, which accounts for 66.8 percent of its investments and which rose by 2.7 percent.
Real estate holdings, which account for 2.6 percent of its holdings, rose by 1.9 percent, while bond investments, which represent 30.6 percent, remained flat.
Faced with falling oil revenues in recent years, the Norwegian government has been tapping the fund to finance public spending since 2015. But with oil prices recovering, the fund registered its first inflow in three years in June.