* China hints it would use rare earths in trade war with
U.S.
* U.S. Midwest markets hit by disruptions due to flooding
* Iran's May crude exports fall to 400,000 bpd -sources
* U.S. crude oil stocks fall 5.3 mln bbls-API
(Adds API data)
By Devika Krishna Kumar
NEW YORK, May 29 (Reuters) - Oil prices fell in volatile
trade on Wednesday, weighed down by equity markets as China
signaled readiness to escalate the trade war with the United
States, stoking concerns that an ongoing stand-off could hurt
demand.
Supply constraints linked to the Organization of the
Petroleum Exporting Countries' output cuts and political
tensions in the Middle East offered some support, however.
Brent crude futures LCOc1 , the international benchmark for
oil prices, ended the session at $69.45 a barrel, down 66 cents,
or 0.9%, having hit a session low of $68.08.
U.S. West Texas Intermediate (WTI) crude futures CLc1 fell
33 cents, or 0.6%, to settle at $58.81 per barrel, after hitting
a low of $56.88, the lowest since March 12.
Both contracts were set for a monthly decline.
In the United States, cash crude markets in Cushing,
Oklahoma and fuel markets in the area have been roiled this week
by pipeline outages and disruptions due to flooding in the
Midwest after heavy rains. But U.S. crude futures and the front-month spread between
July and August U.S. crude futures WTCLc1-WTCLc2 pared some
losses in part due to news of the Ozark pipeline from Cushing to
Illinois restarting on Thursday, traders and brokers said.
Trading in the front-month spread is closely tied to supply
and demand at Cushing, the delivery point for U.S. crude
futures.
In a sign of escalating tensions between the world's two
biggest economies, China signaled it was ready to use its
dominant position in rare earths to strike back in a trade war
with the United States, Chinese newspapers warned on Wednesday.
Rare earths are a group of 17 chemical elements used in
products ranging from high-tech consumer electronics to military
equipment. Trade worries and slowdown fears have pressured investors to
dump so-called "risk assets" such as equities .MIWD00000PUS
and oil globally and seek safety in German and U.S. government
debt. Wall Street's main indexes hit more than two-month lows on
Wednesday. MKTS/GLOB .N
While China has so far not explicitly said it would restrict
rare earths sales to the United States, Chinese media have
strongly implied this would happen.
Oil prices also pared some losses in post-settlement trade
after U.S. crude inventories fell by 5.3 million barrels in the
week to May 24 to 474.4 million, data from industry group the
American Petroleum Institute showed. API/S
Weekly U.S. oil inventory data has been delayed by Monday's
Memorial Day holiday, with the government's report due on
Thursday at 11 a.m. EDT.
TIGHTER GLOBAL SUPPLIES
Despite these concerns dragging on oil markets, crude prices
remain supported on overall supply tightness.
Iranian May crude exports fell to less than half of April
levels to around 400,000 barrels per day (bpd), tanker data
showed and two industry sources said, after the United States
tightened the screws on Tehran's main source of income.
July Brent crude futures were trading at around $1.50 a
barrel above the August contract LCOc1-LCOc2 , a structure
known as backwardation, which points to a tight market.
"The last time it was any higher in this segment was in
September 2013," Commerzbank said. "That market participants are
prepared to pay such a premium for oil that can be delivered at
short notice points to tight oil supply."
Adding to the support are hopes that supply cuts led by OPEC
and its allies, known as OPEC+, implemented at the start of the
year to prop up the market, would be extended in a meeting next
month.
Russia will carefully consider extending its oil output
reduction agreement with OPEC+, Russian First Deputy Prime
Minister Anton Siluanov told Reuters on Wednesday. "OPEC and its allies are due to meet in June or July to
discuss the output policy, with the likelihood resulting in an
extension to the current cutting policy which has been in place
throughout 2019," said Mihir Kapadia, chief executive of Sun
Global Investments.
"We expect markets to remain underwhelming until the meeting
has taken place as investors look to avoid taking risks until
the picture is much clearer."