Oil rallies as Trump postpones additional tariffs against China

Brent gained 4% on Tuesday ending nearly two weeks of bearishness

Mr Trump's announcement of additional tariffs on China, caused the biggest single-day declines in WTI in four and half years. Getty Images

Oil prices rallied as much as 4 per cent on Tuesday after US President Donald Trump deferred additional tariffs on China, as markets remain susceptible to investor sentiment.

Brent gained $2 and surged past $60 per barrel to finish at $61.30 on Tuesday in reaction to the US president postponing the implementation of his proposed 10 per cent tariff on $300 billion worth of Chinese imports to December 15 instead of September 1. Prices fell back below $60 on Wednesday, though, with Brent standing at $59.45 per barrel at 5.25pm UAE time.

Mr Trump said the tariff delay was to avoid hurting US consumers ahead of Christmas. He signalled reciprocal action from China, writing on Twitter: "As usual, China said they were going to be buying "big" from our great American Farmers. So far they have not done what they said. Maybe this will be different!"

Mr Trump’s turnaround on Tuesday eased concerns over an escalation of the US's ongoing trade war with China.

"Yesterday was an eye opener on how much global growth fear hides in oil prices,” said Norbert Ruecker, head of economics and next generation research at Julius Baer.

"Following yet another twist in the trade saga, the partial delay of the recent tariff announcement, oil prices jumped by more than 4 per cent."

The announcement was only a temporary relief, he said.

Oil prices tanked following the president's announcement on August 1 that he would impose additional taxes on top of the 25 per cent levied on around $250bn worth of Chinese goods. The West Texas Intermediate benchmark suffered its steepest single-day decline in four years following the announcement, while Brent lost 7 per cent of its value the same day.

Giovanni Staunovo, commodity analyst with UBS says Mr Trump and his tweets, as well as trade war concerns, are the primary mover of markets.

"In contrast, price-supportive supply news that Opec crude production fell to a five-year low in July barely moved prices. This shows that sentiment, not fundamentals, is driving prices at the moment," he said.

Mr Trump's position on the trade war has had a debilitating impact on demand growth for crude from China, the world's largest oil importer. Beijing saw its economic growth weaken to a three-decade low of 6.2 per cent in the second quarter. Global oil demand growth is also likely to be squeezed to as low as 100,000 bpd this year and 900,000 bpd in 2020, according to the Institute of International Finance. It said that each percentage point decrease in Chinese growth equates to a 300,000 bpd decline in demand for oil.

Prices also rose after an official from Saudi Arabia told Bloomberg on Friday that Riyadh would do "whatever it takes" to stop the slide in prices and was considering all options. The official did not disclose what those measures were.

Saudi Arabia, the world’s largest oil exporter, together with other producers in the Opec+ alliance, reversed proposed output cuts in May last year to boost production in response to US pressure to lower prices. The alliance, however, reinstated the reduction at Opec’s annual meeting in Vienna in December after a near 37 per cent crash in prices by December.

The alliance has since undertaken supply corrections as producers remain wary of a surging supply of US shale.

On Friday, UAE Energy Minister Suhail Al Mazrouei wrote on Twitter that Opec+ will hold a technical committee session on September 12 in Abu Dhabi.

He reassured markets that inventory overhang targeted by the alliance was in decline.

“Demand remains healthy (despite the market’s temporary overreaction, which is driven by speculation). I am confident that Opec+ will continue its strong compliance with agreed production levels,” he said.

He wrote that the UAE would continue to support Opec and non-members in adopting measures to balance the oil markets.

“The United Arab Emirates remains committed to the Opec and non-Opec agreement, which has brought greater market balance and improved market stability,” he said.