Crude slid to a two-week low after China announced tariffs on US oil for the first time and US President Donald Trump signaled he might escalate the trade dispute.
Futures dropped 2.1 percent in New York on Friday after China’s declaration of new levies on US$75 billion of US oil and other goods.
Last year, Beijing removed crude from a list of levied goods, signaling the importance of US oil in the global market.
The decision to include it now shows how the trade spat has intensified, forcing Asia’s biggest economic power to use duties on the strategic commodity as ammunition.
“We appear to be moving further away from a resolution” to the trade dispute, Janus Henderson Investors analyst Noah Barrett said during a telephone interview. “Ultimately, this exacerbates fears of slowing economic growth and slowing oil-demand growth.”
Even before the tariffs were announced, Chinese orders for US crude had been on the wane.
The Asian nation’s refiners were the ninth-biggest destinations for US oil during the first five months of the year, down from third-largest last year.
“We see today’s move as a knee-jerk reaction lower driven by sentiment rather than fundamentals,” RBC Capital Markets commodity strategist Michael Tran said.
The latest dust-up between China and the Trump administration came as leaders from the G7 nations prepared to meet in France and central bankers gathered in Jackson Hole, Wyoming, to discuss issues including fears of a global economic slowdown.
In a speech, US Federal Reserve Chairman Jerome Powell said “we’ve seen further evidence of a global slowdown” and would be watching developments for impact on the US.
New York-traded crude futures have dropped more than 7 percent this month as the protracted trade dispute fanned fears about stunted demand.
US factory data declined for the first time in a decade, while domestic fuel stockpiles increased this week, aggravating concerns about a potential glut.
West Texas Intermediate (WTI) crude for October delivery declined US$1.18 to settle at US$54.17 a barrel on the New York Mercantile Exchange. The contract was down 1.17 percent for the week.
Brent for October delivery on Friday dropped US$0.58 to end the session at US$59.34 on the ICE Futures Europe Exchange, up 1.2 percent for the week. Its premium to WTI for the same month traded at US$5.17 a barrel.
The Chinese tariffs are to take effect in stages between Sunday next week and the middle of December, according to the announcement from the Chinese Ministry of Commerce.
This mirrors the timetable the US has laid out for 10 percent tariffs on nearly US$300 billion of Chinese shipments.
While the US is not among the biggest crude suppliers to China, its shale boom has made it one of the top producers in the world along with Saudi Arabia and Russia.
At a time of OPEC output cuts, sanctions that are strangling supplies from Iran and Venezuela, and rising geopolitical tensions in the Middle East, the import-dependent Asian nation needs reliable crude imports to sustain economic growth.
“Escalating trade tension increases the risk of the world moving into recession,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich, Switzerland. “That could result in even lower oil demand next year, and an even more oversupplied oil market next year.”
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