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Oil Dips as Trade War Fears Pip U.S. Crude Draw, Potential Rate Cut

© Reuters.

By Barani Krishnan – Even a crude drawdown and potential U.S. rate cut down the road couldn’t help oil bulls.

Crude prices settled down on Wednesday after the Energy Information Administration reported the first U.S. crude stockpile draw in three weeks.

The market also bucked expectations for a late rebound by remaining down after the Federal Reserve indicated it was open to an interest rate cut if needed. Monetary easing basically weakens the and stimulates investments in dollar-denominated alternatives like oil, and other commodities.

New York-traded settled down 14 cents, or 0.3%, at $53.76 a barrel. The U.S. crude benchmark rallied almost 4% on Tuesday, its biggest one-day gain in five months, after President Donald Trump tweeted that he would be meeting his Chinese counterpart Xi Jinping next week at the G-20 to resume trade talks.

The president’s tweet raised hopes that the two leaders would find a way to resolve the escalation of tariffs in both countries, which businesses fear could spark a global recession.

London-traded , the benchmark for oil outside of the U.S., closed the official trading session down 29 cents, or 0.5%, at $61.85 per barrel.

decreased by 3.11 million barrels in the week to June 14, according to the EIA. That easily beat the 1.08-million-barrel draw analysts had expected for last week, though it was nowhere close to offsetting the combined build of nearly 9 million barrels in two previous weeks.

unexpectedly decreased by 1.69 million barrels, compared to expectations for a gain of 0.94 million barrels. , which include , diesel and other premium transport fuels such as jet and rail fuel, dropped by 0.55 million barrels, compared to forecasts for a build of 0.71 million.

Prior to its latest dataset, the EIA reported a net growth of some 33 million barrels in crude over the past 12 weeks that crossed into the current peak driving season in the United States. Combined with recession fears generated by the U.S.-China trade war, oil prices lost about 20%from April’s highs, falling into a bear market.

“The trade war is what’s throttling the market now for oil,” said John Kilduff, partner at New York energy hedge fund Again Capital. “We had an EIA report with good crude, gasoline and products drawdowns, but with all the builds we’ve had in past weeks, the market’s thinking is that one swallow does not a summer make.”

“Basically, if we want to get this market and any other going, you’re going to need to resolve this trade war,” Kilduff said. “Rate cuts and stimulus alone might not help the situation we have right now.”

Federal Reserve Chairman Jerome Powell told a news conference that there was not much support from his fellow central bankers for a rate cut this month.

“A number of people wrote down rate cuts, but all of those but apparently one felt that it would be better to see more before moving,” Powell said.
FOMC member James Bullard was the lone dissenter.

The Fed’s monthly policy statement said that while it expected sustained expansion economic activity, strong labor market conditions, and inflation near its symmetric 2% objective, “uncertainties about this outlook have increased”.