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Oil Rebounds on Supply Squeeze; Looks Beyond China Tariffs

By Barani Krishnan – President DonaldTrump has made good on his threat to hit China with higher import tariffs but crude prices are holding well because of another Trump policy that’s working just as well with the Chinese: sanctions on Iranian oil.

Reports that China Petrochemical and China National Petroleum, both top state-owned refiners, were skipping Iranian oil purchases for loading in May to avoid U.S. penalties helped U.S. crude futures to recoup much of Friday’s early losses and for Brent crude to settle higher.

West Texas Intermediate futures, the benchmark for U.S. crude, settled down 4 cents at $61.66 per barrel.

London Brent futures, the global benchmark for oil, gained 23 cents, or 0.3%, to finish the day at $70.62.

Both benchmarks posted modest weekly losses, with WTI down 0.5% and Brent showing 0.3% decline.

Oil prices fell much sharper in Friday’s early trade after the U.S. raised tariffs on $200 billion in Chinese goods, bringing their duties to 25% from a previous 10%, despite Trump saying China’s President Xi Jinping had written him a “beautiful letter” on how the two nations could cooperate on trade. Beijing promised to retaliate, escalating a battle over China’s technology ambitions.

But crude came off their lows as traders took note of a Reuters report that Chinese refiners have skipped bookings for Iranian cargo loadings in May on worries that taking oil from Tehran could invoke U.S. sanctions and cut them out of the global financial system. China is Iran’s largest oil customer with imports of 475,000 barrels per day (bpd) in the first quarter of this year, according to Chinese customs data.

Aside from the Iranian sanctions, contamination in Russia’s Druzhba oil pipeline, a key conduit for crude into Eastern Europe and Germany, has hit Russian exports, further capping losses in crude futures.

“The fact that Rosneft is boosting imports into the Pacific is a telling sign that the ‘struggle is real’ on Russian exports into Europe,” Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, North Carolina, said, referring to Russia’s largest oil driller.

“The optimism of a quick return of Russian exports is becoming a major question to many traders in the market,” Shelton said in an email to

Geopolitical tensions also supported oil prices.

U.S. commercial ships including oil tankers sailing through key Middle East waterways could be targeted by Iran in one of the threats to U.S. interests posed by Tehran, the U.S. Maritime Administration said in an advisory.

The U.S. military said this week that a number of B-52 bombers would be part of additional forces being sent to the Middle East to counter what the Trump administration calls “clear indications” of threats from Iran to U.S. forces there. The Islamic Republic has dismissed the U.S. contention of a threat as “fake intelligence”.

Also a measure of support for oil on Friday was the slight decline in the U.S. oil rig count published by industry firm {{0|Baker Hughes}}. Oil rigs fell back by 2 this week to stand at 805, offsetting last week’s two-rig rise, Baker Hughes said.

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