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WITH the number of variables growing, the ‘crude game’ is on.

The first and the foremost in the long list of variables impacting the crude sentiments is the ongoing trade war between China and the US. In a sign of escalating tensions, Beijing signalled it was ready to use its dominant position in rare earth metals to strike back. “Waging a trade war against China, the United States risks losing the supply of materials that are vital to sustaining its technological strength,” China’s Xinhua news agency said in a commentary.

And as the trade war intensifies, the prospect of a global economic slowdown is very much on cards. This would significantly impact the global crude consumption patterns.

Geopolitics also continues to hold sway. Eyes remain fixed on the ongoing war of nerves between the US, its allies and Iran. The issue is who blinks first?

Last week, the US National Security Adviser John Bolton, regarded as a hawk in the current administration on Iran, told reporters that the attacks early May on oil tankers near Fujairah (on the tip of the strategically important Straits of Hormuz) was the work of “naval mines almost certainly from Iran”. However, Bolton didn’t offer any evidence to back the allegation. Iran responded by calling the accusation “ridiculous”.

However, President Donald Trump seems avoiding to take a very hard line on the issue. Last Monday, almost out of blue, the US president said a deal with Iran regarding its nuclear programme was possible. “I really believe that Iran would like to make a deal, and I think that’s very smart of them, and I think that’s a possibility to happen,” Trump said in Tokyo.

Yet, pressure on Iran is working. Its May crude exports fell to less than half of the April levels to around 400,000 barrels per day (bpd). This is more than 2 million bpd off its 2.5m bpd peak in April 2018.

This needs to be seen in the perspective of Sinopec and CNPC, China’s two top oil refiners skipping the purchase of Iranian oil for loading in May, backtracking on their earlier pledges. But before that in April, Chinese refiners had increased their purchases of Iranian crude. The average daily intake of Iranian oil in April was almost 790,000 bpd.

Beijing chose to do so, apparently not only under the US pressure but also to avoid worsening the prospects of success, in its ongoing trade talks with the US.

On the other hand, amid the deepening trade row, and despite Chinese total crude imports continuing to rise, averaging 10.64m bpd in April, Beijing seems hesitant to buy the US crude. Chinese majors are avoiding signing long-term supply agreements with US producers, Reuters reported.

Last year between January and June, China was the biggest buyer of US oil at a daily rate of 377,000 barrels. This has dropped to 41,600 bpd for the six months to February this year, customs data cited by Reuters said.

However, in order to make up for the loss, Saudi oil exports to China witnessed a spectacular jump, rising 43 per cent on the year in April to an average of 1.53m bpd against 1.07m bpd in April 2018.

Iran but is endeavouring to reduce the impact of the sanctions. Reports are pouring in, that Iran has increased the use of the ‘switch-off-the-transponder’ tactic, which makes tracking its exports via the AIS systems, increasingly difficult and opaque. Tehran has also reportedly resumed, shipping oil to Syria, with a million barrels of oil arriving there, early May. Iran has also upped its coordination with Iraq, to ship its crude labelled as Iraqi crude.

There are also reports that despite the announcement made by the Indian ambassador to the United States that India, the second largest oil customer of Iran after China had officially ended oil imports from Iran, India may resume Iranian oil purchases soon. The Indian government is set to begin negotiations with Iran to pay in rupees for Iranian oil to bypass the US sanctions, Indian news outlet ThePrint reported citing two government sources.

All this leaves the Organisation of Petroleum Exporting Countries (Opec) in a quandary. Markets continue to be ‘foggy’. Before taking a decision during its upcoming ministerial, later this month or early July, it would like to weigh on all the possibilities. Yet not all the variables are crystal clear, making things difficult for Opec.

Consequent to all this, oil prices are heading south as May came to an end.

Published in Dawn, June 2nd, 2019