UPDATE 12-Crude oil benchmark Brent sees biggest one-day fall in two years


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    * U.S. crude inventories fall 12.6 million barrels in week
    * Trump threatens tariffs on another $200 bln of Chinese
    * U.S. could also consider waivers on sanctions against Iran
    * Libya lifts force majeure on four oil ports

 (Adds CME technical issues in final paragraph)
    By Jessica Resnick-Ault
    NEW YORK, July 11 (Reuters) - Global benchmark Brent crude
oil had its biggest one-day drop in two years on Wednesday as
escalating U.S.-China trade tensions threatened to hurt oil
demand, and news that Libya would reopen its ports raised
expectations of growing supply.
     Brent crude  LCOc1  fell $5.46, or 6.9 percent, to settle
at $73.40 a barrel. The decline was the largest one-day move on
a percentage basis since Feb. 9, 2016. U.S. crude  CLc1  fell
$3.73, or 5 percent, to $70.38 a barrel. 
    The sell-off began early in the session after Libya's
National Oil Company said it would reopen ports which had been
closed since late June.
    "The headline on Libya was merely the trigger," said John
Saucer, a vice president at advisory firm Mobius Risk Group. The
sell-off intensified after news of a fall in U.S. crude oil
inventories failed to reverse market sentiment. 
    "The scope of today's sell-off is unequivocally a
speculative washout," said Saucer. Hedge funds and other money
managers with bullish wagers appeared to pare long positions,
pulling back from positions added as crude approached three and
a half year highs last month, Saucer said.     
    The selling pressure intensified as trade tensions between
the U.S. and China raised concerns about demand. The specter of
tariffs on a further $200 billion of Chinese goods sent
commodities lower, along with stock markets, as tension between
the world's biggest economies intensified.  urn:newsml:reuters.com:*:nL4N1U71IM
    "Escalating trade tensions between the U.S. and China has
prompted risk aversion in today's trading session, which is
evident in oil prices," said Abhishek Kumar, senior energy
analyst at Interfax Energy.
    Crude oil prices also fell as the U.S. dollar rose on
Wednesday's surprisingly strong U.S. inflation report, which
increased prospects the Federal Reserve will raise interest
rates twice more this year.  urn:newsml:reuters.com:*:nL1N1U61NG A stronger dollar can
weaken dollar-denominated commodities, like crude.
    "Trade concerns have bitten today," said Michael McCarthy,
chief markets strategist at CMC Markets. "If these tariffs are
introduced, there will be an impact on global growth and
demand." China is a top buyer of U.S. crude, and has said it
could tax U.S. oil if trade tensions escalate.
    Tripoli-based Libya National Oil Corp said on Wednesday four
export terminals were being reopened after eastern factions
handed over the ports, ending a standoff that had shut down most
of Libya's oil output.  urn:newsml:reuters.com:*:nL8N1U73MO
    Libyan oil production has fallen to 527,000 barrels per day
(bpd) from a high of 1.28 million bpd in February following port
closures in late June, the NOC said on Monday.  urn:newsml:reuters.com:*:nL8N1U524U    
    "Libyan relief changes the conversation about spare
capacity," said John Kilduff, a partner at Again Capital
Management. Concerns about a lack of spare capacity had led
crude to rally. 
    Prospects of U.S. sanctions on crude exports from Iran, the
world's fifth-biggest oil producer, has helped push oil prices
up in recent weeks, with both crude contracts trading near
3-1/2-year highs until Wednesday.
    U.S. Secretary of State Mike Pompeo said on Tuesday that
Washington would consider requests from some countries to be
exempt from sanctions due to go into effect in November to
prevent Iran from exporting oil.  urn:newsml:reuters.com:*:nW1N1QE00W
    Washington had previously said countries must halt all
imports of Iranian oil from Nov. 4 or face U.S. financial
restrictions, with no exemptions.
    The market shrugged off bullish U.S. government data showing
crude stockpiles slumped by nearly 13 million barrels last week,
the biggest slide in nearly two years.  EIA/S   USOILC=ECI 
Supply to the U.S. market has also been squeezed by the loss of
some Canadian oil production.  urn:newsml:reuters.com:*:nL4N1U54MZ
    "In spite of the extraordinary draw in crude oil
inventories, the market is under pressure after refiners
produced a record amount of gasoline this week and in
conjunction with a greater than expected build in distillate
inventories," said Andrew Lipow, president at Lipow Oil
Associates in Houston. 
    During the session, CME Group said a technical issue
impacted connectivity for some customers. "Our markets remain
open while we work directly with customers to resolve the
issue,” a CME spokesman said in an emailed statement. 

GRAPHIC: U.S. oil may fall to $71.57-$72.77    https://tmsnrt.rs/2NIqynJ
GRAPHIC: Brent oil may fall to $77.42    https://tmsnrt.rs/2NE1DBr
Iran crude oil exports to major Asian clients in H1 2018    https://reut.rs/2NIum8v
 (Reporting by Jessica Resnick-Ault, additional reporting by
Christopher Johnson in London and Aaron Sheldrick in Tokyo;
Editing by Richard Chang, and Clive McKeef)
 ((Jessica.Resnick-Ault@thomsonreuters.com; 646-223-6052;))

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