Oil Rises From Five-Week Low as Supply Risks Counter Trade Angst

(Bloomberg) -- Oil rebounded from a five-week low as Russia’s contamination crisis and an industry report signaling a drop in American gasoline inventories took precedence over growing fears that U.S.-China trade talks will fail.

Futures rose as much as 0.9 percent in New York after dropping 1.4 percent Tuesday. Russian tankers continue to hold Urals crude exported from the country’s Baltic Sea port of Ust-Luga, a sign that contamination issues remain unresolved. U.S. crude stockpiles climbed by 2.81 million barrels last week, but gasoline inventories fell by a similar amount in a bullish sign for demand, the American Petroleum Institute was said to have reported Tuesday.

Oil’s rally went into reverse late last month on speculation Saudi Arabia and other producers will fill the gap created by the loss of Iranian barrels. Signs the global economic outlook is improving had been preventing steeper declines, but that’s now been thrown into doubt by the White House’s plan to raise tariffs on Chinese imports. A delegation from Beijing is still set to visit Washington this week for talks, providing a glimmer of hope for investors.

“Russian supply issues are contributing to the overall tightness in market, but it’s expected to be a short-term thing,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “I think people are just taking a breather today because the Chinese delegates are moving to Washington for talks. Overall, the situation remains fraught with risks.”

West Texas Intermediate crude for June delivery rose 46 cents, or 0.8 percent, to $61.86 a barrel on the New York Mercantile Exchange at 7:34 a.m. in London. The contract dropped by 85 cents to $61.40 on Tuesday, the lowest close since March 29.

Brent for July settlement climbed 34 cents, or 0.5 percent, to $70.22 a barrel on the London-based ICE Futures Europe exchange. It closed at $69.88 on Tuesday, the lowest since April 4. The global benchmark crude was at a premium of $8.24 to WTI for the same month.

Only one of 13 tankers that loaded at the Ust-Luga terminal since the discovery of organic chlorides in Russian crude last month has discharged its cargo. Some of these ships that loaded potentially tainted oil have been anchored awaiting discharge for up to 10 days, according to ship tracking data compiled by Bloomberg. Others are floating at sea, having apparently halted part way through their journeys.

The API report on U.S. stockpiles comes before Energy Information Administration data due Wednesday. The EIA will report a 1.9 million barrel expansion in nationwide inventories in the week through May 3, according to the median estimate in a Bloomberg survey.

Asian stocks fell for a third day Wednesday on speculation the the world’s two largest economies will be unable to resolve their differences on trade. Chinese Vice Premier Liu He will lead a trade delegation visiting Washington on Thursday and Friday. “The headlines coming out of the trade talks will sway the market more than anything else,” OCBC’s Lee said.

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