A worker pours extracted crude oil into a bucket. (Photographer: Dimas Ardian/Bloomberg)

Crude Slumps as Trade War Overshadows Drop in U.S. Inventories

(Bloomberg) -- Crude tumbled to a nearly seven-week low as the escalating trade dispute between the world’s biggest economies overshadowed a decline in U.S. crude stockpiles.

Futures declined 3.2 percent on Wednesday in New York, the biggest drop in more than two weeks. China will levy 25 percent tariffs on billions of dollars in U.S. gasoline, diesel and other goods in a matter of weeks. Meanwhile, American crude inventories fell by just a fraction of what was forecast, while the gasoline surplus expanded for the first time since June, the Energy Information Administration reported.

Investors are focused on "the geopolitical issues that the market is facing right now, especially the Chinese tariffs on gasoline and refined products in general, which can certainly impact near-term pricing,” said Adam Wise, who oversees an $8 billion energy portfolio at John Hancock Financial Services Inc. in Boston. “The key to future global demand growth, and therefore, the underlying commodity price, is China and so to the extent that you’re seeing noise around that, you’re going to get softness in the crude market.”

Crude Slumps as Trade War Overshadows Drop in U.S. Inventories

The U.S. benchmark crude has traded below $70 a barrel this month as the U.S.-China dispute percolated. As American sanctions isolate Iran, exports by OPEC’s No. 3 producer have fallen and the Islamic Republic is relying more on its own tanker fleet to deliver oil to customers, according to ship-tracking data compiled by Bloomberg.

West Texas Intermediate crude for September delivery dipped $2.23 to settle at $66.94 a barrel on the New York Mercantile Exchange.

Brent for October settlement slid $2.37 to end the session at $72.28 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $6.03 premium to WTI for the same month.

Amid the tariff tension, China National Petroleum Corp. and China National Offshore Oil Corp. received “important instructions” from President Xi Jinping to increase domestic exploration and production in order to safeguard the country’s energy security, according to separate statements on the companies’ websites.

“It’s something that is a definite concern and, as we start to see more tariffs in place, that’s going to slow down the delivery of goods and services across the globe,” said Mark Watkins, who helps oversee $151 billion at U.S. Bank Wealth Management.

Meanwhile, in the U.S., crude inventories fell 1.35 million barrels last week, according to the EIA, well shy of the 3-million-barrel drop expected by analysts surveyed by Bloomberg. Gasoline stockpiles increased by 2.9 million barrels, the data showed.

“The trade talk continues to escalate,” said Brian Kessens, who helps manage $16 billion in energy assets at Tortoise. The EIA report was “pretty underwhelming to say the least.”

Other oil-market news:

  • Gasoline futures fell 4 percent to settle at $2.0195 a gallon, the lowest level in three weeks.
  • Iran’s Oil Minister Bijan Zanganeh sent a letter to the OPEC president to complain that some members of the organization were producing crude at levels exceeding set limits or redistributing the unfulfilled amounts, according to the Iranian Oil Ministry website.
  • The escalating trade battle between Canada and Saudi Arabia highlights the need for more pipelines to move oil and natural gas around the northern nation to improve its energy security, according to the Canadian oil industry’s largest trade group.

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