Oil Falls as Trump, Jinping Meeting Lowers Tariff Expectations

(Bloomberg) — Oil extended a three-day losing streak after an amicable exchange between President Donald Trump and Chinese President Xi Jinping reduced traders concerns that US threats of indirect levies on Russian crude supplies would come to pass.

West Texas Intermediate fell 1.4% to settle just below $63 a barrel as traders rolled over positions ahead of the October contract’s expiry next week, adding to choppy trading. Trump said he would meet Jinping on the sidelines of the upcoming Asia-Pacific Economic Cooperation summit, but there was little publicly said about China’s continued purchase of Russian crude supplies.

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The meeting, which comes just a week after the US urged allies to impose tariffs as high as 100% on China and India, reduced traders’ expectations of incoming US secondary tariffs against China, a move that could inflame trade tensions and tighten global balances.

“The fact that Trump did not highlight Chinese purchases of Russian crude following his meeting with Xi has lowered the perceived probability of US secondary sanctions,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “At the same time, India continues to buy Russian barrels, and the EU package language doesn’t appear strong enough to trigger further US action.”

Crude has traded in a $5 band for most of the past month-and-a-half as traders take in conflicting signals on supply and weigh them against the outlook for the US economy. Repeated Ukrainian strikes on Russian energy assets along with global calls to place levies against Moscow’s crude have underpinned support. But so far, most experts still expect the market to move into a glut, with fears of oversupply reining in moves to the upside for weeks.

“Attacks on Russian oil infrastructure are giving some upside support to prices, but it’s still tempered by a market looking for a surplus in the months ahead,” said Edward Bell, acting group head of research and chief economist at Emirates NBD.

Speculators continue to look for clues on whether China and India will continue buying Russian oil. Indian refiners, for one, have no plans to ditch those purchases, according to people with knowledge of the matter.

The oil market is also digesting this week’s US central-bank decision to cut interest rates by 25 basis-points. Although lower rates typically boost energy demand, policymakers’ warnings of mounting weakness in the labor market weighed on sentiment. The dollar strengthened on Friday, making commodities priced in the currency less attractive.