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United States Oil Fund LP (ETF)(NYSE:USO): China Drops US Oil

09 July 2018

Indications are growing that show the U.S. can not rely on Saudi Arabia for too long to make up for the missing Iranian oil supplies once American sanctions are re-imposed against the country.

"If China imposes tariffs, their refineries won't buy US crude since it would cost more", Sandy Fielden, director of research for commodities and energy at Morningstar Inc., said by telephone.

US oil price went up on Friday after dropping almost 2 percent in the previous session.

At 0734 GMT, August WTI crude oil was trading at $73.02, up 0.07 or +0.10 per cent and September Brent crude oil is at $77.17, down $0.22 or -0.28 per cent.

The United States and China exchanged the first salvos in what could become a protracted trade war on Friday, slapping tariffs on $34 billion worth of each others' goods and giving no sign of willingness to start talks aimed at a reaching a truce.

The State Department said this week that certain countries, including India and South Korea, will be allowed reduced flows of Iranian oil.

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On Thursday, the U.S. Energy Administration (EIA) announced that U.S. crude inventories had risen 1.2 million barrels in the week to June 29, to 417.88 million barrels.

"Things will get worse before they get better on trade. between the US and China", said Greg McKenna, chief market strategist at futures brokerage AxiTrader. The stoppage at the 360,000 barrels per day (bpd) Syncrude facility in Canada has contributed to a sharp reduction in the discount for United States crude versus Brent crude over the past month.

Beijing has threatened a 25 percent tariff on US crude imports, although it has not specified a date.

This news was generally thought of as bearish because traders had been pricing-in a 4.4 million barrel decline.

He added his refinery had cancelled USA crude orders and would switch to Middle East or West African supplies instead.

USA investment bank Jefferies said on Friday it expected “a drop in Iranian exports well in excess of 1 million bpd” due to the US sanctions.

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In other news, potential supply shortages continue to be the hot topic.

"Venezuela...will lose another 400,000 bpd by year-end with production going to below 1 million bpd", FGE said, adding that another 300,000 bpd of Libyan capacity was disrupted.

However, it warned that this would leave the global market with less than 1 million bpd of capacity left to meet all other contingencies.

Trump has lashed out at OPEC producers to reduce prices, making a claim - later backtracked by the White House - in a tweet on Saturday that Saudi Arabia had agreed to increase oil output by up to 2 million barrels.

At the same time, exports from several OPEC producers, including Venezuela and Libya, have been falling.

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United States Oil Fund LP (ETF)(NYSE:USO): China Drops US Oil