Oil prices fell in volatile trade on Wednesday, weighed down by equity markets as China signalled readiness to escalate the trade war with the United States, stoking concerns that an ongoing stand-off could hurt demand.
Supply constraints linked to the Organization of the Petroleum Exporting Countries' output cuts and political tensions in the Middle East offered some support, however.
Brent crude futures, the international benchmark for oil prices, ended the session at $69.45 a barrel, down 66 cents, or 0.9%, having hit a session low of $68.08.
US West Texas Intermediate (WTI) crude futures fell 33 cents, or 0.6%, to settle at $58.81 per barrel, after hitting a low of $56.88, the lowest since March 12.
Both contracts were set for a monthly decline.
In the United States, cash crude markets in Cushing, Oklahoma and fuel markets in the area have been roiled this week by pipeline outages and disruptions due to flooding in the Midwest after heavy rains.
But US crude futures and the front-month spread between July and August US crude futures pared some losses in part due to news of the Ozark pipeline from Cushing to Illinois restarting on Thursday, traders and brokers said.
Trading in the front-month spread is closely tied to supply and demand at Cushing, the delivery point for US crude futures.
In a sign of escalating tensions between the world's two biggest economies, China signalled it was ready to use its dominant position in rare earths to strike back in a trade war with the United States, Chinese newspapers warned on Wednesday.
Rare earths are a group of 17 chemical elements used in products ranging from high-tech consumer electronics to military equipment.
Trade worries and slowdown fears have pressured investors to dump so-called "risk assets" such as equities and oil globally and seek safety in German and US government debt. Wall Street's main indexes hit more than two-month lows on Wednesday.
While China has so far not explicitly said it would restrict rare earths sales to the United States, Chinese media have strongly implied this would happen.
Meanwhile, US crude oil inventories were forecast to have drawn down last week, after climbing to the highest levels since July 2017 a week earlier due to near-record high production and lower refinery runs in the Midwest.
Weekly US oil inventory data has been delayed by Monday's Memorial Day holiday, with industry data due later on Wednesday and the government's report on Thursday at 11 a.m. EDT.
Despite these concerns dragging on oil markets, crude prices remain supported on overall supply tightness.
Iranian May crude exports fell to less than half of April levels to around 400,000 barrels per day (bpd), tanker data showed and two industry sources said, after the United States tightened the screws on Tehran's main source of income.
July Brent crude futures were trading at around $1.50 a barrel above the August contract, a structure known as backwardation, which points to a tight market.
"The last time it was any higher in this segment was in September 2013," Commerzbank said. "That market participants are prepared to pay such a premium for oil that can be delivered at short notice points to tight oil supply."
Adding to the support are hopes that supply cuts led by OPEC and its allies, known as OPEC+, implemented at the start of the year to prop up the market, would be extended in a meeting next month.
Russia will carefully consider extending its oil output reduction agreement with OPEC+, Russian First Deputy Prime Minister Anton Siluanov told Reuters on Wednesday.
"OPEC and its allies are due to meet in June or July to discuss the output policy, with the likelihood resulting in an extension to the current cutting policy which has been in place throughout 2019," said Mihir Kapadia, chief executive of Sun Global Investments. "We expect markets to remain underwhelming until the meeting has taken place as investors look to avoid taking risks until the picture is much clearer."-Reuters
Cotton prices break 3-day winning streak
NEW YORK: Cotton prices fell on Wednesday after a 3-session rally, weighed down by escalating US-China trade tensions and a federal report showing good crop plantation numbers for the natural fibre.
Cotton contracts for July settled down 0.41 cent, or 0.59%, at 69.06 cents per lb. It traded within a range of 68.61 and 69.81 cents a lb. The front month contract touched its highest level since May 10 at 69.81 cents per lb earlier in the session.
"The crop progress is pretty good, just underneath the five-year average (of 58%)," Jack Scoville, vice president at Price Futures Group in Chicago said. He also cited demand concerns amid US-China trade tensions.
"Cotton made a run and tried to break out to the upside in anticipation of maybe too much rain delaying the planting progress but it's not necessarily raining in cotton areas."
Tuesday's crop progress report from the US Department of Agriculture (USDA) showed cotton crop was 57% planted in the week to May 26, more than the 44% reported for the previous week. Chinese newspapers warned on Wednesday that Beijing could use rare earths to strike back at the United States after US President Donald Trump remarked he was "not yet ready" to make a deal with China over trade.
Fears of an escalating trade war between the two major economies dragged world stock markets down to near 2-1/2 month lows. Total futures market volume fell by 11,201 to 23,133 lots. Data showed total open interest gained 963 to 215,815 contracts in the previous session. Certificated cotton stocks deliverable as of May 28 totalled 82,163 480-lb bales, down from 85,063 in the previous session. Data from the US Commodity Futures Trading Commission on Friday showed speculators boosted their net short position in cotton by 12,945 lots to 38,881 lots, their largest since April 2016.
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