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Oil Retreats From Highs as Iran War Talk Loses Traction

© Reuters.
© Reuters.

By Barani Krishnan – Iran and oil’s war worries have to wait. Attention is back to China and the trade war.

Crude futures rowed back much of Friday’s early gains that would have made it a four-day winning streak for the bulls as China’s state-run media expressed impatience over the trade negotiations after Huawei and other Chinese companies were shown the door from the U.S. market.

, the benchmark for U.S. crude, were up 25 cents, or 0.4%, at $63.12 per barrel by 11:30 AM ET (15:30 GMT). It hit a two-week high of $63.64 earlier on fear that a new war might break out in the Persian Gulf after Saudi Arabia accused Iran of sabotaging the kingdom’s oil infrastructure.

Iran, officially barred from selling its crude under U.S. sanctions, had previously warned other oil exporters of “consequences” for supporting the action by President Donald Trump. But it denies charges of trying to sabotage Saudi oil facilities through its Houthi rebel allies, who have claimed responsibility for the attacks.

, the global benchmark for oil, slid by 20 cents, or 0.3%, to $72.41.

In spite of the pullback from Friday’s highs, WTI is still on course to end the week up 2.4%. While it is down 1.3% on the month, year to date it shows a 38% gain.

Brent is up 2.6% on the week, 0.7% on the month and 34% on the year.

Oil turned direction after Taoran Notes, a pro-government WeChat blog run by China’s state-owned Economic Daily, said it was “meaningless” for Chinese officials to meet with their American counterparts when Washington wasn’t showing any sincerity for the welfare of Chinese commerce in striking a trade deal.

The comments, just one day after the White House excluded Huawei and other Chinese companies from the U.S. market, are a turn in rhetoric for China, which had previously been patient and hopeful on a deal being reached.

Market participants also became less bullish after media reports quoted senior Trump administration officials as saying the president actually had no wish to push the U.S. into a war with the Islamic Republic.

“I am not a believer in the ‘Middle East Tension’ story as I have been numbed in my years on this, and the addition of Trump into the picture only makes it seem worse,” said Olivier Jakob at PetroMatrix, an oil consultancy in Zug, Switzerland.

“The chances of conflict to me are still very low, which tells me not to embrace this rally as it’s too news-driven,” Jakob said.

Traders will be on the lookout for the weekly oil rig count from industry firm Baker Hughes after 1:00 PM ET (17:00 GMT).

The rig count, an indicator of future production, has belied the recent highs in U.S. crude production, often coming in lower when expectations are for it to rise.

Over the past two weeks, the reading for oil rigs has moved back and forth by just two units. It is currently at its lowest since March 29, 2018, with just 805 actively operating rigs. But U.S. crude production is near record highs at 12.2 million barrels per day.