Crude Crumbles Under Trade War That Imperils Economic Growth
(Bloomberg) -- Crude plunged the most in two years as the escalating U.S.-China trade war that threatens economic growth overshadowed the biggest drop in American crude inventories since 2016.
Futures fell almost 7 percent in London on Wednesday. U.S. President Donald Trump is poised to slap tariffs on almost half the products Americans import from China within weeks, and the Asian nation has pledged to retaliate. Meanwhile, U.S. stockpiles shrank by 12.6 million barrels last week, oil imports in the biggest American refining region fell the most in half a decade, and Libya prepared to unleash more crude exports.
“The escalating trade war between the U.S. and China definitely is causing risk-off across risk assets and commodities get caught up in that,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Demand around the world is healthy so far, but that’s the risk -- that this drives us into some sort of economic slowdown and if that happens, oil demand suffers.”
In recent weeks, Brent topped $79 a barrel and the U.S. benchmark rose above $75 amid actual and anticipated supply disruptions from Canada to the Persian Gulf. Saudi Arabia has promised to ramp up output to help cover shortfalls from other major suppliers, though some observers questioned the kingdom’s capacity to do so.
Meanwhile, the imminent resumption of exports from Libya’s eastern ports added downward pressure to oil prices.
West Texas Intermediate crude for August delivery slipped $3.73 to settle at $70.38 a barrel on the New York Mercantile Exchange, the biggest decline since June 2017.
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Brent for September settlement fell $5.46 to end the session at $73.40 on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $4.54 to WTI for the same month.
In the U.S. Gulf Coast region that includes refining centers in Texas and Louisiana, oil imports plunged by 1.13 million barrels last week, the steepest decline since September 2012, according to the EIA.
“There’s no doubt that that uncertainty continues to weigh, not only on the crude oil markets, but really all markets,” said Brian Kessens, who helps manage $16 billion in energy assets at Tortoise. As for the storage report, “there was a little bit of noise in the data. It just depends when the ships actually hit the docks.”
Investors focused on the discord between the U.S. and China, which has rattled global markets. The sectors targeted by each nation’s tariffs include metals, energy and agricultural products. China has seven weeks to make a deal or dig in and try to outlast the U.S. leader.
- Gasoline futures fell 4.6 percent to settle at $2.0614 a gallon, the lowest in two weeks.
- OPEC expects supplies from its rivals to increase by the most in five years in 2019, with extra oil from the U.S. alone sufficient to meet global demand growth.
- Compliance and enforcement of new maritime fuel rules is likely to be weak when they kick in in 2020, but refiners and ship owners may be able to comply better than some observers are anticipating, according to RBC Capital Markets’ analysts.
- A strike by Norwegian drilling workers that forced Royal Dutch Shell Plc to shut its North Sea Knarr field appears unlikely to cut any more production in the short term, even if the action escalates in the coming days.
©2018 Bloomberg L.P.