Oil edges lower as US stimulus hopes offset US-China tensions

Crude prices inched lower as the market balanced talks of further US stimulus spending supported against rising US crude production and heightened US-China tensions.

NYMEX September WTI settled 2 cents lower at $41.90/b and ICE September Brent gave back 3 cents to settle at $44.29/b.

Oil prices pulled off morning lows following reports that Senate Republicans are considering an at least partial extension of the enhanced unemployment benefits that expire this month.

"We are seeing a bit of a rally on optimism that Congress can get some kind of short-term deal done to put money in the hands of consumers," Price Futures Group senior market analyst Phil Flynn said. "The theory being that those consumers will then put some of that money into their gas tanks and that should help those gasoline demand numbers."

NYMEX August RBOB settled up 31 points at $1.2828/gal while August ULSD settled 93 points lower at $1.2707/gal.

Oil futures came under pressure early in the session amid concerns that rising US-China tensions could threaten the Phase One trade deal between the two countries.

The US State Department early July 22 ordered Beijing to close its Houston, Texas consulate within 72 hours, according to media reports. The move marked an escalation of the already strained US-China relations after months of US President Donald Trump chiding Beijing for its handling of the COVID-19 coronavirus outbreak and blaming China for the global spread of the disease.

However, the downside price pressure was limited by the belief that Trump, who faces re-election this fall, is unlikely to allow trade tensions to cloud market outlooks, analysts said.

"The main takeaway is that while this looks like it is escalating pretty quickly, the general belief is still that we will not see complete deterioration of this relationship," OANDA senior market analyst Edward Moya said.

"[President Trump] needs a stronger economy and can't afford China not living up to the trade deal, so we are ultimately going to see this de-escalate eventually," he added.

Markets were also balancing a bearish US inventory report showing crude stockpiles climbed 4.89 million barrels and crude production ticked 100,000 b/d higher in the week ended July 17. But the top-line crude build was partially offset by steep declines in gasoline inventories, which fell 1.8 million barrels last week, putting stockpiles just 6.9% above the five-year average, in from as much as 12.6% in mid-April.

Looking forward, Tropical Depression seven was upgraded to Tropical Storm Gonzalo early July 22 as the storm's wind speed picked up to 75 miles an hour, and expectations are for it to reach hurricane status by July 23, according to the National Hurricane Center data.

Current NHC predictions have Gonzalo moving over Trinidad and Tobago and Venezuela by early July 26 morning into the mouth of the southern Gulf of Mexico.

And while the NHC said it expects strengthening to continue "over the next couple days with a leveling off," it is too soon to gauge what impact, if any, it will have on oil and gas infrastructure in the Gulf of Mexico.