Oil falls as trade war fuels worry about growth

Singapore/Tokyo — Oil prices fell on Monday amid renewed global economic growth concerns after US President Donald Trump vowed to escalate the trade war with China with more tariffs, which would likely limit fuel demand in the world’s two biggest crude consumers.

Brent crude futures fell 73 cents, or 1.2%, to $61.16 a barrel by early-morning.

US West Texas Intermediate (WTI) crude futures dropped 62 cents, or 1.1%, to $55.04 a barrel.

Both crude benchmarks fell last week, with Brent dropping 2.5% and US crude falling 1%.

Asian equity markets dropped to a six-month low on Monday while gold prices climbed as investors sought safe-haven assets because of the ratcheting up of the trade dispute between China and the US, the world’s two largest economies.

“Crude oil futures experienced significant headwinds as global risk appetites remain feeble over subdued global growth and a sudden escalation in the Sino-US trade dispute,” said Benjamin Lu, commodities analyst at Singapore-based brokerage Phillip Futures.

Trump said last week he would impose a 10% tariff on $300bn of Chinese imports starting on September 1 and said he could raise duties further if China’s President Xi Jinping failed to move more quickly towards a trade deal.

The announcement extends US tariffs to nearly all imported Chinese products. China vowed on Friday to fight back against Trump’s decision, a move that ended a month-long trade truce.

On Monday, China let the yuan tumble beyond the key seven-per-dollar level for the first time in more than a decade, in a sign Beijing may tolerate further currency weakness because of the trade dispute.

The 1.4% drop in the yuan came after the People’s Bank of China (PBOC) set the daily mid-point of the currency’s trading band at its weakest level since December 2018.

A lower yuan would raise the cost of China’s dollar-denominated oil imports. It is the world’s biggest crude oil importer.

Signs of rising oil exports from the US also pressured prices on Monday. US shipments surged by 260,000 barrels per day (bpd) in June to a monthly record of 3.16-million bpd, US Census Bureau figures showed on Friday.

The trade war and rising supply should accelerate the trend of speculators reducing their bullish positions in the WTI futures markets.

Speculators cut bullish wagers on US crude in the week to July 30 while bearish wagers rose to their highest since February, the US Commodity Futures Trading Commission (CFTC) said on Friday.

However, speculators increased their bullish positions in Brent futures.

Also in the US, the weekly oil rig count, an indicator of future production, fell for a fifth consecutive week as most independent producers cut spending even though majors were still pushing ahead with investments in new drilling.

Iran’s seizure of an Iraqi oil tanker raised some concerns about potential Middle East supply disruptions in the Gulf. Iran’s state media reported on Sunday the Iranian Revolutionary Guards seized the ship for smuggling fuel. 

Reuters