Oil Plunges to almost 7-Week Low amid US-China Trade Tension

Oil Plunges to almost 7-Week Low amid US-China Trade Tension

US crude futures rose 8 cents to $67.02 a barrel, having closed down 3.2 percent the day before. In Europe, spot demand for Iranian crude is sharply down, but refiners with term contracts are still honoring them, according to sources who spoke to Platts. The Turkish lira fell to a new record low against the dollar amid a dispute with the US government, while the Russian ruble also dropped after USA sanctions on the country over its alleged involvement in poisonings in Britain.

The weakness was pronounced at China's independent oil refineries, known as teapots, which the market views as an indicator of real demand for the world's second biggest oil consumer, Kilduff said.

Markets remained supported by the introduction on Tuesday of new US sanctions against Iran, which initially target Iran's purchases of USA dollars - in which oil is traded - as well as metals trading, coal, industrial software and its auto sector.

Many energy analysts believe new sanctions will remove far less of Iran's barrels than the last time when about half its oil exports were erased from the market as a result of United States and European sanctions. OPEC and Russian Federation reported an increase in their output by 300,000 and 150,000 barrels per day in July, respectively.

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The US government introduced a raft of new sanctions against Iran on Tuesday, targeting Iran's purchases of US dollars - in which oil is traded - metals trading, coal, industrial software and its auto sector.

Oil prices fell from more than $100 a barrel in 2014 to less than $30 a barrel in early 2016 amid a supply glut, but have recovered to trade above $70 a barrel since April, as output curbs by the Opec cartel of producers and other countries helped to reduce supplies.

Though China could indeed see oil demand growth slow in coming months, in part due to the ongoing trade row with the US, in the mid to long term China's oil consumption thus its reliance on foreign oil will continue to grow.

The heightened fear of a looming supply shock prompted Amrita Sen, chief oil analyst at Energy Aspects, to tell CNBC, "As we go more towards (the fourth quarter) ... that's when we really see the risk of prices going well into the $80s and potentially even into the $90s, but very critical is how much Iranian production we lose. Iran sanctions will take another 1 million bpd off the markets", warning that this would leave markets with little spare capacity to deal with unforseen disruptions.

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Exxon Mobil Corp. (NYSE: XOM) traded down about 0.8%, at $80.62 in a 52-week range of $72.16 to $89.30.

The U.S. has restored sanctions against Iran as as President Donald Trump reaffirmed plans to impose more penalties on the country's oil sales in November.

The ratcheting up of trade tensions between the USA and China could also help oil buyers in India, the world's third-biggest crude consumer, according to Interfax's Kumar. The dollar index, which measures the greenback against six major peers, fell 0.15 percent to 95.217 at 3:00 p.m. (2000 GMT).

Gasoline stocks rose by 2.9 million barrels, compared with analysts' expectations in a Reuters poll for a 1.7 million barrel drop.

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