Futures Movers: Oil lower as U.S.-China tensions mount, dollar rises

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Oil futures lost ground Friday, but remained on track for weekly gains, with pressure tied to rising tensions between the U.S. and China after President Donald Trump imposes a sweeping but unspecified ban on dealings with the Chinese owners of consumer apps TikTok and WeChat.

Read:Trump bans ‘transactions’ with Chinese owners of TikTok, WeChat

West Texas Intermediate crude for September delivery CL.1, -0.19% CLU20, -0.19% was down 44 cents, or 1.1%, at $41.51 a barrel on the New York Mercantile Exchange, while October Brent crude BRN.1, -0.28% BRNV20, -0.28% fell 49 cents, or 1.1%, to $44.60 a barrel on ICE Futures Europe. WTI was headed for a 3% weekly rise, while Brent is up 2.6%.

The pair of executive orders banning transactions with Chinese social media companies signed by Trump late Thursday take effect in 45 days. Oil shifted lower in Asian trade after the announcement, showing “that when it comes to geopolitical risk, Asia oil traders (and most for that fact) have an unfortunate predisposition to heightened U.S.-China tensions,” said Stephen Innes, chief global market strategist at AxiCorp., in a note.

Saudi Arabia on Thursday lowered its official selling price, or OSP, for crude into Asia and Europe by 30 cents. Analysts said the move came as a relief to traders who had feared a steeper cut in a bid to take market share from rivals.

But the cut still suggests the global market isn’t absorbing physical crudes as cleanly as a month ago, said Michael Tran, analyst at RBC Capital Markets, in a note.

“The cut to OSPs is a sign that the market is struggling to absorb the easing of the OPEC production cuts as additional barrels sleeve back to market this month,” he wrote, referring to an easing of curbs by the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, beginning this month.

Tran noted that China has played an oversize role in soaking up supplies, which means any slowing of Chinese imports will show up in softer physical pricing. Meanwhile, refinery margins remain soft across most regions, while the U.S. and Europe have seen stagnating traffic patterns in recent weeks.

“We continue to have a cautious outlook, particularly heading into the fall shoulder season as abysmal refining margins could result in economic run cuts, or demand destruction for crude,” he said.

A lack of progress in talks between the U.S. Congress and the White House over additional coronavirus aid was also a potential weight on crude prices, analysts said.

Meanwhile, the U.S. currency was on the rise, with the ICE U.S. Dollar Index DXY, +0.25%, a measure of the greenback against a basket of six major rivals, up 0.4%. Dollar weakness, which saw the index slump more than 4% in July, was seen providing support for oil and other commodities priced in the unit. A weaker dollar makes them less expensive to users of other currencies.