By William Watts, MarketWatch
Oil futures ended lower Friday, trimming weekly gains, with pressure tied to rising tensions between the U.S. and China after President Donald Trump imposed a sweeping but unspecified ban on dealings with the Chinese owners of consumer apps TikTok and WeChat.
West Texas Intermediate crude for September delivery /zigman2/quotes/211629951/delayed CL.1 +0.21% was down 73 cents, or 1.7%, to close at $41.22 a barrel on the New York Mercantile Exchange, while October Brent crude /zigman2/quotes/211756000/delayed UK:BRN.1 +0.17% fell 69 cents, or 1.5%, to finish at $44.40 a barrel on ICE Futures Europe. WTI saw a 2.4% weekly rise, while Brent gained 2%.
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.
Meanwhile, investors have remained fairly upbeat in the face of a reduction in production curbs by major producers that took effect on Aug. 1.
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 [return to the] market,” 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,” he said, particularly coming into the end of the summer driving season, “as abysmal refining margins could result in economic run cuts, or demand destruction for crude.”
A further decline in the number of U.S. oil rigs did little to move prices in early afternoon trade. Oil-field services firm Baker Hughes said the number of rigs fell by four this week to 176.
A lack of progress in talks between congressional Democrats and the White House over additional coronavirus aid was also a potential weight on crude prices, as it could represent a threat to consumer demand, analysts said. Talks were set to resume Friday despite a wide gulf on key issues.
Meanwhile, the U.S. currency was on the rise, with the ICE U.S. Dollar Index /zigman2/quotes/210598269/delayed DXY -0.49% , a measure of the greenback against a basket of six major rivals, surging 0.8%. 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.
In other energy trading, September natural gas futures ended the week on an up note, rising 7.3 cents or 3.4%, at $2.238 per million British thermal units, brining it to a weekly gain of 24.4% — its largest one-week rise since November 2018.
The U.S. market has been echoed by similar gains for European natural-gas prices, with both influenced by liquefied natural gas, or LNG, shipments, said Eugen Weinberg, analyst at Commerzbank.
Asian LNG prices surged recently by 40% to five month highs, he said, in a Friday note, but warned that high stock levels could hinder further gains. Storage capacity in the European Union is around 87% full, he said, while U.S. stocks at 3.27 trillion cubic feed are up 22.5% from the same time last year, and 15% above the five-year average.
September gasoline fell 2.05 cents, or 1.7%, ending at $1.2076 a gallon, logging a 3.1% weekly rise. September heating oil fell 3 cents, or 2.4%, to close at $1.2199 a gallon, marking a 0.3% weekly fall.