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Crude Rally Fades on Chinese Oil Import Record

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11/08/2019 | 04:26pm EST

By Ryan Dezember

A nascent rally in oil prices fizzled on Friday after Chinese customs data showed the country imported more crude in October than ever before, despite the continuing trade friction with the U.S.

The disclosure eliminated some of the optimism traders have held that a detente in the trade war between the world's two largest economies would lift demand for oil. Those hopes had sent oil prices 5.5% higher to start the month.

On Friday, however, prices for U.S. crude opened trading by losing as much as 2.5%. They recovered in the afternoon as a widely cited barometer of U.S. drilling activity indicated a further slowdown, before closing essentially flat.

West Texas Intermediate futures for December delivery settled up 0.16% to $57.24 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, gained .35% to end at $62.51 a barrel on London's ICE Futures exchange.

"The euphoria over a possible trade deal between the U.S. and China already appears to have evaporated," Commerzbank AG analyst Carsten Fritsch wrote in a note to the German bank's clients. Chinese imports were up 11.5% over the same time a year ago and through 10 months China had bought 10.5% more crude than it did over the same period in 2018.

"A resolution to the trade dispute is hardly likely to generate additional impetus for oil demand," Mr. Fritsch said.

That has traders focused on next month's meeting of the Organization for Petroleum Exporting Countries. Saudi Arabia, the cartel's leader, is planning to push other members to more closely adhere to production-cut targets in an effort to bolster oil prices and reiterate the kingdom's ability to muscle other OPEC members on supply matters ahead of the stock offering of its Saudi Arabian Oil Co.

The IPO on the Saudi Arabian stock exchange is scheduled for Dec. 11, six days after Saudi delegates are to meet in Vienna with the 13 other members of OPEC and several other countries from a Russian-led coalition. The countries have been operating under an agreement since June to curb output in order to support prices in the face of a flood of shale oil spilling out of the U.S.

Swelling U.S. oil stockpiles have added pressure to prices. The U.S. Energy Information Administration said inventories climbed during the week ended Nov. 1 to about 3% above the five-year average for this time of year as exports and consumption by refineries declined, the Strategic Petroleum Reserve pumped 700,000 barrels into the market and imports ticked higher.

Domestic drillers, meanwhile, continued to show signs this week of slowing activity, which investors are hoping will slow the growth in U.S. production and support prices. The number of rigs drilling on land in the U.S. declined by six to 793, which is down 25% from the same time a year ago.

Companies have reduced their activity in response to low prices and greatly diminished financing from investors, who have fled the oil-and-gas sector after years of falling share prices.

Analysts with Tudor, Pickering, Holt & Co. said Friday that two days of visits with West Coast money managers recently "felt almost optimistic as the collapse in available liquidity for many upstream companies may finally draw to an end a decade plus of uneconomic growth."

Write to Ryan Dezember at ryan.dezember@wsj.com

Corrections & Amplifications

This story was corrected at 5:23 p.m. ET to fix the misstated change in Brent crude, the global benchmark. It gained 0.35% to end at $62.51 a barrel on London's ICE Futures exchange, not .035%.

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