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James Hyerczyk
Crude Oil

U.S. West Texas International and Brent crude oil futures are trading slightly lower early Tuesday, following yesterday’s steep reversal to the downside. Although the market continues to be underpinned by the OPEC-led production cuts and the U.S. sanctions against Iran and Venezuela, concerns over the impact of the escalation of the trade dispute between the United States and China on future demand is helping to limit gains.

At 08:31 GMT, July WTI crude oil is trading $60.99, down $0.22 or -0.36% and July Brent crude oil is at $70.16, down $0.07 or -0.10%.

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On Monday, prices surged to a one-week high amid turmoil in the Middle East. Saudi Arabia on Monday said that two of its oil tankers were among those attacked off the coast of the United Arab Emirates and described it as an attempt to undermine the security of crude supplies amid tensions between the United States and Iran.

The market retreated from its highs, however, after a steep sell-off in U.S. equities dampened demand for higher risk assets. The weakness was prompted by China’s retaliation against U.S. tariffs with new tariffs of its own. Comments from the government also pressured prices with the U.S. Energy Department saying on Monday that it was confident global oil markets are well supplied.

“The Department of Energy is aware of efforts to disrupt oil shipping as reported by the governments of Saudi Arabia and the United Arab Emirates,” said Shaylyn Hynes, DOE press secretary, about the attack near Fujairah emirate, one of the world’s largest bunkering hubs lying just outside the Strait of Hormuz.

“The Department is monitoring the oil markets, and is confident they remain well-supplied,” Hynes said after the attack which did not cause any casualties, or an oil spill, but resulted in significant damage to the ships.

Daily Forecast

Technical factors could play a role in today’s price action with traders showing respect to the very important 200-day moving average. For WTI, the key support is $60.75 and for Brent, the number to watch is $68.92. This indicator is closely followed by hedge fund traders.

Fundamentally, U.S.-China trade relations are still at the forefront with President Trump saying we’ll know in three or four weeks whether there is a deal. In the meantime, we could see some price swings.

The big concern for oil traders is whether an escalated or prolonged trade war leads to a U.S. recession or a global economic slowdown. Both will have a negative impact on demand.

In the meantime, the focus will shift to U.S. supply late today with the release of the American Petroleum Institute’s weekly storage report at 20:30 GMT. This is followed by Wednesday’s U.S. Energy Information Administration’s weekly storage report. Last week, the EIA report showed an unexpected 4 million barrel decline.

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