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Crude futures turn higher as geopolitics trump tariff talk

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Crude futures turn higher as geopolitics trump tariff talk

New York — Crude futures settled higher Monday, rising from an overnight selloff as concerns over a trade war between the US and China gave way to more bullish geopolitical events, analysts said.

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June NYMEX crude settled 31 cents higher at $62.25/b, while July ICE Brent settled 39 cents higher at $71.24/b.

NYMEX June crude had fallen to $60.04/b and ICE Brent to $68.79/b in overnight trade after US President Donald Trump threatened to raise tariffs on China from 10% to 25%.

An additional $325 billion of Chinese goods imported into the US "remain untaxed, but will be shortly at a rate of 25%," Trump said on Twitter. Trump complained via tweeter that the trade deal talks were going "too slowly."

Chinese negotiators were scheduled to come to Washington this week for another round of negotiations.

If the tariffs were imposed, retaliatory action by China will mean that US crude and LNG flows into China attract a reciprocal 25% tariff. China does not currently impose tariffs on US crude imports, and implements a 10% tariff on US LNG.

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Unipec, the trading arm of China's state-run Sinopec, bought two cargoes of US crude for delivery to China in late April and early May, its first such imports since September when purchases stopped due to trade tensions.

But traders eventually ended up "downplaying some of the worst case scenarios" of Trump's tariff threats, said Price Futures Group senior market analyst Phil Flynn. "Now the market is more focused on geopolitical risks."

Flynn pointed to weekend news that the US is sending the USS Abraham Lincoln carrier strike group and a bomber command force to the Middle East after Iran repeatedly said it may close the Strait of Hormuz.

Iran has made the threats in response to US sanctions. The US has discontinued sanctions waivers in an attempt to cut Iran crude exports to zero. In recent months, Iranian exports have been around 1.2 million-1.3 million b/d.

The 21-mile Strait of Hormuz at the mouth of the Persian Gulf handles roughly 40% of global crude trade.

Tradition Energy analyst Gene McGillian pointed to several other supportive factors bolstering prices, including US sanctions on Venezuela, and news that Saudi Arabia has been hinting at extending production cuts.

Saudi energy minister Khalid al-Falih last week said in an interview with Russia's Sputnik news agency that a majority of participants in the so-called OPEC+ group favored extending the current production cuts past their expiration in June.

In refined products, NYMEX June RBOB settled 2.99 cents lower at $1.9966/gal, while NYMEX June ULSD settled 26 points lower at $2.0676/gal.

-- Jeff Mower, with staff reports, newsdesk@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com