(Bloomberg, Friday, August 30, 2019) -- Oil headed for its biggest weekly gain since mid-July after a sizable drop in American crude inventories and an apparent pause in U.S.-China trade hostilities eased demand fears.

Futures in New York fell Friday but are still up 3.9% for the week. China said Thursday that it wouldn’t immediately retaliate against the latest White House tariff increase, spurring optimism that Beijing wants to reach a deal. U.S. crude stockpiles fell by more than 10 million barrels to the lowest level since October 2018, data released Wednesday showed.

Oil is still heading for its second monthly loss this year on signs the trade war is taking an increasing toll on the global economy. Production curbs by the Organization of Petroleum Exporting Countries and its allies have stemmed some losses, although American production is still rising.

“It remains to be seen whether the U.S. and China can make progress,” and there’s a risk tit-for-tat tariffs will delay the rebalancing of the market, said Jun Inoue, a senior economist at Mizuho Research Institute Ltd. in Tokyo. “The main factor for crude prices will be how the global economy performs next year, particularly the U.S.”

West Texas Intermediate for October delivery declined 44 cents, or 0.8%, to $56.27 a barrel on the New York Mercantile Exchange as of 7:43 a.m. in London after closing 1.7% higher Thursday in a third day of gains. The contract is up $2.11 since Aug. 23, heading for the biggest weekly gain since July 12.

Brent for October settlement fell 32 cents, or 0.5%, to $60.76 a barrel on the ICE Futures Europe Exchange. It advanced 1% Thursday and is up 2.4% this week. The global benchmark crude traded at a $4.49 premium to WTI.

President Donald Trump said in a Fox News radio interview Thursday that the U.S. and China were scheduled to hold trade talks that day. He didn’t give further details, and there was no subsequent confirmation that the meeting took place. The U.S. president also said that tariffs are working and that he wasn’t going to give up.

Along with stockpiles declining nationwide, U.S. government data showed inventories at the storage hub of Cushing, Oklahoma, fell to the lowest level in eight months after the start of new Permian Basin pipelines redirected oil toward export terminals on the Texas coast. U.S. production rose 1.6% to a record 12.5 million barrels a day last week, according to the Energy Information Administration.

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